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Texas Performance Review
The Future of the Public Utility Commission in Texas

Chapter 3

Ensuring Universal Access

Another key concern in the shift towards a competitive market is the need to ensure that basic electric and telephone services are still universally available. Universal access is the concept that basic services should be available and affordable to all citizens in all areas, and that the scope of these services expands as more advanced services become commonplace and necessary to function effectively in society. Traditionally, this has been ensured through requirements placed on monopoly utilities to serve people within their designated service areas. As new providers enter the market and competition increases, responsibility and funding for these services will have to be rethought.

Both state and federal law promote universal telecommunications service, but the concept is not precisely defined in either. PUC policy states that "All citizens of the state should be able to obtain the basic telecommunications services needed to communicate with other citizens, businesses, and governmental entities." The current PUC definition of basic services is "flat rate residential and business local exchange service, including primary directory listings, tone dialing service, access to operator services, access to directory assistance services, and access to 9-1-1 service..."[ 1 ][ 2 ]

On November 7, 1996, the Federal-State Joint Board on Universal Service, a board made up of three commissioners from the Federal Communication Commission and four commissioners from state regulatory agencies (those of Florida, Missouri, Washington, and South Dakota), issued recommendations regarding the support mechanisms needed to advance the principles of universal service enumerated in the Federal Telecommunications Act of 1996.[ 3 ] These recommendations include continuing subsidies for low-income consumers and consumers who live in "high-cost" areas, as well as new provisions that would provide telecommunications service at a discount to eligible schools, libraries, and rural health care providers.[ 4 ]

The federal and Texas state governments both use subsidies to ensure universal availability of service, channeled through separate federal and state Universal Service Funds (USFs). Both the state and federal funds are supported with contributions from service providers. Texas' USF provides subsidies to service providers in high-cost regions, indigent disabled customers, and persons whose speech or hearing disabilities make it impossible for them to use traditional telephone service.

The 1995 Legislature also established the Telecommunications Infrastructure Fund (TIF), a fund designed to provide up to $150 million a year for ten years in grants and loans to public schools, libraries, hospitals, and other public facilities for the purchase of telecommunications equipment, networks, and other computer equipment; training; and development of related programs. PUCis not involved in management of TIF.

In Texas, PUC substantive rules state that electric utilities have an "obligation to serve each qualified applicant for service within its certificated area as rapidly as is practical."[ 5 ] In its recently completed report, Scope of Competition in the Electric Industry, PUC proposes goals and principles for the restructuring of Texas' electric industry. One goal addresses the need for universal service: "Electric service is essential for the health, safety, and economic prosperity of all Texans. High quality, reasonably priced electric services shall be available to all."[ 6 ]

The report further defines universal service in two separate components: access to the distribution system and delivery of energy through the system. Because universal service could suffer in a competitive environment if energy generation and its transmission and distribution become separate services, as opposed to the integrated service from a single provider available today, PUC expects to establish rules for providers of last resort to ensure that everyone is served.[ 7 ]

The sweeping changes occurring in both the electric and telecommunications industries undoubtedly will affect existing regulatory safety nets designed to ensure universal basic electric and telephone service. Regulations that required carriers to provide these services may no longer be applicable in a free-market environment. PUC is revising the scope and definition of "universal service" to meet the demands of new federal telecommunications legislation, and changes at the state level will ensure conformity with these measures.

For fiscal 1996 and 1997, PUC has budgeted 2.75 full-time equivalent (FTEs) employees, or 4,440 staff hours, to telecommunication universal service issues. This includes 3,500 hours by Legal Administration personnel to administer the Relay Texas Program, which provides advanced telecommunication services for the hearing and speech impaired, and 940 hours by the Office of Regulatory Affairs to address rulemaking related to universal service (640 hours), and to monitor USF activities (300 hours).[ 8 ]

No staff time has been budgeted to address universal electric service because of continued uncertainty in the timing of electric deregulation. The telecommunications market is much further along in its deregulation, and federal guidelines already have been issued that require immediate staff attention. Universal electric service issues will be immensely important when the time comes, however, and PUC should begin planning its response now.

TPR recommendations in this chapter would direct PUC to examine the potential benefits of increasing phone service to low-income Texans and to seek legislative direction on whether the monies in Texas' telecommunications Universal Service Fund should be placed in the State Treasury to strengthen accountability over these funds. TPR also proposes that the PUC develop recommendations for the Legislature on protecting low-income Texans from any adverse impacts of electric industry restructuring.

PROPOSAL 9

PUC should examine additional means of increasing phone service to low-income Texans.

BACKGROUND

Universal service in the telephone industry historically has been defined as the universal availability of adequate telephone service at affordable rates, and is measured chiefly in terms of the percentage of households subscribing to telephone service.[ 9 ] Most households lacking telephone service are very young or very poor; in 1990, 15 percent of all American households headed by persons under 25 years of age lacked basic phone service, as did 23 percent of those households with annual incomes of $5,000 or less.[ 10 ]

In 1990, 91 percent of all Texas households had telephone service, compared to 95 percent nationwide.[ 11 ] One of PUC's goals is to "encourage competition, customer choice, and technological advancement in the electric and telecommunication industries." As part of this goal, PUC intends to "ensure that...95 percent of Texas households will have telephone service in place by 2001."[ 12 ] In 1996, that figure still stood just above 91 percent.[ 13 ]

PUC has established performance goals for the percentage of Texas households with telephone service for fiscal 1997-1999 as follows :[ 14 ]

    1997    1998    1999

    90.5%    91%    91.2%

Clearly, PUC's targeted rates for fiscal 1997 to 1999 do not indicate much progress toward the agency's stated objective of 95 percent by 2001.

A 1995 study found that many phoneless persons are prevented from reestablishing service because of delinquent bills for long distance telephone service and service deposits, rather than for basic monthly charges. About two-thirds of the persons were unaware of the availability of telephone financial aid, despite the fact that many of them were eligible for it.[ 15 ]

Tel-Assistance Program

The 1987 Legislature established the Tel-Assistance Program through revisions to the Public Utility Regulatory Act. The Tel-Assistance Program provides certain eligible subscribers, as certified by the Texas Department of Human Services (TDHS), with a 65 percent reduction in their monthly local telephone service charge.[ 16 ] To qualify for the Tel-Assistance subsidy, the customer must be a Texas resident, head of a household, a U.S. citizen or legal alien resident, disabled, and have an income at or below the federal poverty level.[ 17 ] During the year ended December 31, 1996, Texas' Universal Service Fund (USF) spent nearly $4.5 million on Tel-Assistance.[ 18 ] The program is available only to customers who are both economically disadvantaged and physically disabled.

Lifeline Program

Lifeline was established by the Federal Communications Commission more than 10 years ago. This initiative, which is available to all indigent customers in participating states (including Texas), consists of two programs: one to reduce or waive qualified consumers' monthly phone charges, and another to reduce the cost of local telephone connection charges by up to half.[ 19 ] The federal government provides half the cost of the subsidy. In Texas Lifeline is a tariffed service, established by the PUC via rate cases for each local exchange character (LEC). The state share of the subsidy is absorbed by the LEC. Because this program is dependent on rate regulation, a new mechanism will be needed to ensure universal service in a fully deregulated market.[ 20 ]

Although Texas telephone subscribers contribute to Lifeline, through the fees they pay their service providers, low-income Texans are not getting their proportionate share of these benefits. One major reason for this disparity is that many indigent Texans simply are not aware of the existence of the program, and therefore do not apply.

New York's Automatic Enrollment Program

New York's telephone penetration rate is 95 percent.[ 21 ] New York places much greater emphasis on identifying and encouraging enrollment in low-income assistance programs.[ 22 ]

One such program, initiated in 1994, is an "automatic enrollment" program whereby New York human services agencies and NYNEX, the local telephone provider to more than 90 percent of the state's subscribers, exchange information to identify low-income residents without local telephone service.

As part of this program, New York's Department of Social Services (NYDSS) identifies consumers who qualify for telephone assistance, including all qualified low-income customers who already participate in other assistance programs such as welfare and Medicaid. NYDSS prepares a computer tape listing these persons and provides it to NYNEX, which matches the names against its own database of persons who have had telephone service but no longer receive it. After an initial match, such persons are identified by NYNEX as appropriate recipients of low-income service. NYNEX is responsible for processing recipient applications and all other administration of the program.[ 23 ]

PUC's current efforts

As part of its recent report on the Scope of Competition in Telecommunications Markets, the PUC recommended three statutory changes related to universal service. These recommendations included changes to ensure that any telecommunications providers, not just incumbent local telephone companies, are eligible to receive universal service funds; clarify that universal service funds be available for use in any high cost area, not just high cost rural areas; and authorize PUC to designate the "carrier of last resort," rather than it automatically being the incumbent local telephone company.[ 24 ] TPR concurs that these changes would help support universal service in a competitive market.

In addition, PUC is planning to examine the issue of universal telephone service in depth this year, beginning with several workshops to obtain input for possible rule changes to be implemented in January 1998. Specifically, they are examining current laws, rules and programs for changes needed to address the shift of local telephone services to a competitive market.[ 25 ]

RECOMMENDATION

PUC should examine, as part of their planned investigation of universal service, whether the Tel-Assistance Program could be broadened to include all economically disadvantaged Texans; and if PUC and the Department of Human Services could implement an "automatic enrollment" program to improve services to low-income Texans.

This recommendation will ensure that PUC give due consideration to these two programs that could significantly increase phone service to low-income Texans and help Texas move closer to the national average of 95 percent of households with telephone service.

FISCAL IMPACT

This recommendation can be implemented within existing resources.

PROPOSAL 10

Puc should seek legislative direction on its oversight of the universal service fund.

Background

State law requires PUC to adopt and enforce rules requiring local telephone companies to contribute to the state's Universal Service Fund (USF), which is used to assist companies in providing basic telephone service at reasonable rates in high-cost and rural areas; to reimburse local companies for revenues lost as a result of assistance provided to low-income persons; and to reimburse the telecommunications carrier that provides statewide telecommunications relay access service for the hearing- and speech-impaired.[ 26 ]

Texas' USF, established by the Legislature in 1987, provides funding for three programs. The Tel-Assistance Program, also established in 1987, provides subsidies for low-income, disabled consumers (see Proposal 9). In 1988, the Legislature authorized the Dual-Party Relay Service Program to give speech- and hearing-impaired individuals equal access to telecommunication services. The High Cost Assistance Program was created in 1992 to provide financial assistance to local exchange carriers (LECs) servicing high-cost areas of the state.

In 1995, Texas USF disbursements totaled almost $20.9 million.[ 27 ] Relay Texas accounted for $10 million, or 48 percent, of these expenditures. High-cost assistance accounted for $6.4 million or 31 percent, while $4.5 million, or 21 percent, was used to provide Tel-Assistance subsidies.

PURA does not clearly state whether the USF is state funds. If it is state money, it should be held in the Treasury, and be subject to legislative appropriation authority, purchasing rules and all other requirements applicable to state funds. The USF is currently held in local bank accounts. It has never been treated as state funds, however the fact that it is funded by a statewide uniform charge authorized by state law would seem to indicate it should be.[ 28 ]

PUC's rules allow the agency to delegate the administration of USF and its programs to another agency or organization by contract.[ 29 ] At present, the Texas Exchange Carrier Association (TECA), a trade association of LECs, administers the fund.

TECA is managed by 10 board members, including executives from Southwestern Bell Telephone Company, GTE Southwest, Inc., United Telephone Company of Texas, Lufkin-Conroe Telephone Exchange, Sugar Land Telephone Company, Big Bend Telephone Company of Texas, Southwest Texas Telephone Company, Kerrville Telephone Company, Inc., XIT Rural Telephone Cooperative, and Eastex Telephone Cooperative. The largest companies (SWB, GTE, United, Lufkin-Conroe, and Sugarland) have automatic representation on the board; the cooperatives elect two board members, while smaller companies elect three.[ 30 ]

In September 1988, TECA and PUC entered into an agreement for TECA to administer the Tel-Assistance Program.[ 31 ] By an amendment to this contract, TECA also agreed to administer the Dual-Party Relay System. In a letter agreement dated August 12, 1992, TECA assumed administration of the High Cost Assistance program as well.[ 32 ]

PUC approves TECA's expenses for these tasks, which are paid by the USF, and also receives a reimbursement from the fund for its own expenses connected with fund administration. The Texas Department of Human Services (TDHS) also receives a reimbursement for its assistance to Tel-Assistance. During the year ended December 31, 1995, the fund disbursed nearly $436,000 to TECA, $548,000 to TDHS, and $153,000 to PUC.[ 33 ]

PUC rules stipulate that the USF administrator must treat all information as proprietary. In the competitive telecommunications marketplace, the confidentiality of propriety information, such as number of minutes of service by various carriers, will become more important, and parties of differing interests may be less willing to entrust the TECA with proprietary information.

Other states

As of May 1996, 20 states had state USFs.[ 34 ] Of those states with a USF, nine are managed by industry representatives (as in Texas); seven are managed by neutral third parties, such as accounting firms; and four are managed by a state agency.

RECOMMENDATION

PUC should seek legislative direction on whether the Universal Service Fund monies should be deposited in the state Treasury and how the fund should be administered.

FISCAL IMPACT

No fiscal impact is anticipated.

PROPOSAL 11

PUC should ensure that electric utility companies maintain an "obligation to serve" all Texas electric consumers after deregulation.

BACKGROUND

PUC's substantive rules require each electric utility to serve all qualified applicants in their service areas.[ 35 ] The cost of serving consumers who are unable to pay full market price is implicitly factored into the prices utilities charge.

In a fully deregulated market, however, some locations or customers may not receive electric power because of the economics of location, usage requirements, or inability to pay market rates. Moreover, these factors might lead to radical variances in prices from area to area.

While the state and federal Universal Service Funds explicitly subsidize telephone service for indigent consumers, no similar mechanism exists for electric power. Instead, utilities' costs to serve such consumers are factored into the rates charged to customers who are able to pay. In 1994, electric utilities in 28 states including Texas provided discounted rates, payment plans, arrearage forgiveness, budget billing, and other programs worth more than $170 million to ensure service for low-income customers.[ 36 ] In a deregulated environment, however, many utilities may abandon discount programs in response to competitive pressures.

The National Conference of State Legislatures (NCSL) has recommended that utility commissions respond to deregulation by creating mechanisms guaranteeing universal service for low-income consumers who use a limited amount of electricity. NCSL believes that state legislatures should set rules determining the nature of these guarantees, while utility agencies should enforce these rules and ensure that utilities meet their obligations to all customers.[ 37 ]

Low-income assistance

Texas low-income residential customers receive special rates from electric companies through programs arranged when PUC approves utilities' tariffs. In addition to such subsidies, the Texas Department of Housing and Community Affairs provides low-income energy assistance and weatherization services; the federal Departments of Energy and Health and Human Services also offer weatherization assistance programs such as the Utility Comprehensive Energy Assistance Program, which provides copayments for families; budget counseling and education on energy conservation; utility bill assistance for elderly and disabled residents; emergency assistance; and equipment repair, tune-up, and replacement.

In a deregulated market, however, electric utilities no longer will operate under existing tariff provisions. Competing utilities may not be obligated to serve consumers who cannot pay market rates.

In addition to existing subsidies from local, state, and federal programs, PUC has begun to consider alternative funding mechanisms for low-income programs, including:


* Direct provision by the distributor. The state would require electric power distribution companies to pay an agreed-upon amount to fund electric service for indigent consumers, in return for the right to operate in the state.


* Customer pools served by private aggregators. This situation would be analogous to, for instance, the pooling of high-risk drivers for automobile insurance. PUC would pool groups of indigent consumers and competing electric power companies would be required to serve them in return for the right to operate in the state.


* Provision through a "wires charge." Such a charge could spread the cost of providing service to indigent consumers not only among distribution companies, but also to power generation companies. A wires charge would provide a means of spreading costs to a broader range of companies who profit from providing electric service.[ 38 ]

California, Rhode Island, and New Hampshire already have approved universal service legislation that requires the continuation of current low-income programs in a deregulated environment. Only a few jurisdictions have not proposed direct funding for low-income customers as part of the restructuring of the electric industry.

Universal service models

In October 1996, the National Consumer Law Center proposed two legislative models for universal electric service. One model is similar to the approach already used in many states, the spreading of costs among all customers. However, the center proposes additional requirements, such as a requirement that suppliers contribute to the funding of these programs as a condition of doing business.

A second model would create a Universal Service Energy Fund, analogous to the existing state and federal Universal Service Funds for telecommunications, to which all energy suppliers would contribute based on their share of the state's energy market.

Both approaches should be designed to obtain the maximum feasible contribution from low-income customers, increase the regularity and amount of customer payments, coordinate deliveries with existing energy assistance programs, and target the greatest assistance to those with the least ability to pay.[ 39 ]

RECOMMENDATION

PUC should develop recommendations for the Legislature to protect low-income Texans from any adverse impacts of electric industry restructuring.

FISCAL IMPACT

No fiscal impact would result from this recommendation. PUC staff members have the expertise and industry knowledge to address these issues adequately.


Endnotes

[ 1 ] Public Utility Commission of Texas, 1997 Report to the Texas Legislature on the Scope of Competition in Telecommunications Markets (Austin, Texas, January 1997), p. 152.

[ 2 ] Federal-State Joint Board on Universal Service, "Joint Board Adopts Universal Service Recommendations (CC Docket 96-45)," Report No. DC 96-100, Washington, D.C., November 13, 1996.

[ 3 ] Federal-State Joint Board, "Joint Board Adopts Universal Service Recommendations."

[ 4 ] 16 T.A.C. SS23.44(d).

[ 5 ] Public Utility Commission of Texas, The Scope of Competition in the Electric Industry in Texas and an Investigation into Electric Industry Restructuring (Austin, Texas, November 25, 1996), p. VII-3. (Draft report.)

[ 6 ] Public Utility Commission of Texas, The Scope of Competition in the Electric Industry in Texas and an Investigation into Electric Industry Restructuring, p. XI-16.

[ 7 ] Public Utility Commission of Texas, Legislative Appropriations Request for Fiscal Years 1998 to 1999 (Austin, Texas, August 1996), p. 5. (Computer printout.)

[ 8 ] Public Utility Commission of Texas, Scope of Competition in Telecommunications Markets (Austin, Texas, October 9, 1996), p. 151. (Draft report.)

[ 9 ] U.S. Bureau of the Census, "Statistical Brief," Washington, D.C., July, 1994, p.2, and Field Pacific Telesis, Federal Regulatory Relations, Affordability of Telephone Service, by Field Research Corp. (Washington, D.C., 1993). (Consultant's report.)

[ 10 ] U.S. Bureau of the Census, "Statistical Brief."

[ 11 ] Public Utility Commission of Texas, Legislative Appropriations Request for Fiscal Years 1998 to 1999, p. 23.

[ 12 ] Public Utility Commission of Texas, Agency Strategic Plan for the 1997-2001 Period (Austin, Texas, June 12, 1996), p. 21.

[ 13 ] Public Utility Commission of Texas, Legislative Appropriations Request for Fiscal Years 1998 to 1999, p. 24.

[ 14 ] The University of Texas at Austin, Lyndon B. Johnson School of Public Affairs, The Evolution of Universal Service in Texas, by Lodis Rhodes (Austin, Texas.)

[ 15 ] 16 T.A.C. SS23.52.

[ 16 ] Letter from Helen McMean, director of the Tel-Assistance Program, Texas Department of Human Services, Austin, Texas.

[ 17 ] Public Utility Commission of Texas, "Universal Service Fund, Audited Financial Statements, Notes to Statements of Revenue and Expenses for the 12 month ended December 31, 1995, Note 1," Austin, Texas, April 19, 1996.

[ 18 ] Federal-State Joint Board, "Joint Board Adopts Universal Service Recommendations (CC Docket 96-45)."

[ 19 ] Telephone interview with Vicki R. Oswalt, chief, office of policy development, Texas Public Utility Commission, January 14, 1997.

[ 20 ] U.S. Bureau of the Census, "Statistical Brief"; and Federal Communications Commission, Common Carrier Bureau, Industry Analysis Division, Telephone Subscribership in the United States (Washington, D.C., September 1996).

[ 21 ] Interview with Randall Chapman, executive director, Texas Legal Services Center, Austin, Texas, December 6, 1996.

[ 22 ] Memorandum of Understanding between the New York State Department of Social Services, the New York City Community Development Agency, and New York Telephone Company, "Telephone Lifeline: Confidential Computer Matching Program," July 26, 1994, pp. 1-2.

[ 23 ] Public Utility Commission of Texas, 1997 Report to the Texas Legislature on the Scope of Competition in Telecommunications Markets (Austin, Texas, January 1997), pp.214-215.

[ 24 ] Interview with Pamela Whittington, office of policy development, Public Utility Commission of Texas, January 17, 1997.

[ 25 ] Vernon's Ann. Civ. St. art. 1446c-O SS3.608.

[ 26 ] Public Utility Commission of Texas, "Universal Service Fund, Audited Financial Statements, Notes to Statements of Revenue and Expenses for the 12 month ended December 31, 1995."

[ 27 ] Electronic mail messages from Kathie Griswold, fiscal management, Comptroller of Public Accounts, January 10 and 14, 1997.

[ 28 ] 16 T.A.C. SS23.53(c)(1)(A).

[ 29 ] Interview with John Millice, director, Texas Exchange Carrier Association, Dallas, Texas, November 26, 1996.

[ 30 ] Public Utility Commission of Texas and Texas Exchange Carrier Association, "Agreement for Administration of Tel-Assistance Service Portion of the Universal Service Fund," September 4, 1988.

[ 31 ] Public Utility Commission of Texas and Texas Exchange Carrier Association, "Amendment of Contract Between Public Utility Commission of Texas and Texas Exchange Carrier Association," January 25, 1990; and letter of agreement by McWhorter, Cobb and Johnson, LLP, attorneys for the Texas Exchange Carriers Association, and the Public Utility Commission of Texas, August 12, 1992.

[ 32 ] Public Utility Commission of Texas, "Universal Service Fund, Audited Financial Statements, Notes to Statements of Revenue and Expenses for the 12 month Period ended December 31, 1995," Note 1.

[ 33 ] "State Universal Service Funding Mechanisms: Results of the NRRI's Survey," The National Regulatory Research Institute, May 1996.

[ 34 ] 16 T.A.C. SS23.44(d).

[ 35 ] National Council on Competition and the Electric Industry, The Electric Industry Restructuring Series: Stranded Benefits in Electric Utilities Restructuring (Boston, Massachusetts, October, 1996), p. 16.

[ 36 ] National Conference of State Legislatures, Regulatory Commissions in a Restructured Industry: draft report, by Matthew H. Brown (Denver, Colorado, December 9, 1996) p. 4.

[ 37 ] Public Utility Commission of Texas, The Scope of Competition in the Electric Industry in Texas and an Investigation into Electric Industry Restructuring p.XI-29.

[ 38 ] National Consumer Law Center and Barbara R. Alexander, Consumer Protection Proposals for Retail Electric Competition: Model Legislation and Regulations (Gardiner, Maine, October, 1996), pp. 35-39.


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