HBA-DMD C.S.H.B. 2690 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2690 By: Counts State Affairs 5/5/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, the telecommunications market in Texas is in transition to a competitive state. C.S.H.B. 2690 relates to the acquisition of small and rural telephone exchanges, and sets conditions for review of sale or transfer of certain exchanges. Under C.S.H.B. 2690, the company that acquires the exchange or exchanges agrees to certain requirements including rate hike caps, rate levels, and the provision that the Public Utility Commission (commission) has jurisdiction over each acquired exchange within the commission jurisdiction applicable to the other exchanges of the acquiring company. C.S.H.B. 2690 also makes certain provisions for telecommunications utilities that jointly acquire two or more exchanges with the intent to partition the exchanges among the utilities at a later date. C.S.H.B. 2690 requires the commission to approve the transaction and to authorize the acquiring telecommunications utility to receive universal service fund disbursements for the residual revenue requirements necessary for the acquiring utility to obtain a rate of return equal to the rate of return allowed by the Federal Communications Commission for the interstate jurisdiction, if the commission determines that the acquiring utility and the acquisition meet certain requirements. C.S.H.B. 2690 authorizes the commission to also consider a rate of return above the federal level. This bill also authorizes the commission to approve the review and authorize universal service disbursements by administrative review. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 51, Utilities Code, by adding Section 51.011, as follows: Sec. 51.011. REVIEW OF SALE OR TRANSFER OF CERTAIN EXCHANGES. (a) Provides that this section applies to a sale or transfer of one or more exchanges in which: (1) each individual exchange being sold or transferred has fewer than 10,000 access lines; (2) all exchanges being sold or transferred have a total of fewer than 100,000 access lines; (3) the company that is selling or transferring the exchange or exchanges is a company electing under Chapter 58 (Incentive Regulation) or 59 (Infrastructure Plan), Utilities Code; and (4) the company that acquires the exchange or exchanges: _is a telecommunications utility that is not a company electing under Chapter 58 or 59, Utilities Code; _will not own more than 100,000 access lines in this state after the acquisition is completed; and _agrees to not increase the rate for basic local telephone service until after the fifth anniversary of the acquisition date; set intrastate switched access rates at the level charged for interstate switched access by that company or by the company selling or transferring the exchange or exchanges; include each acquired exchange within the Public Utility Commission (commission) jurisdiction applicable to the other exchanges of the acquiring company; and establish a level of service quality and infrastructure that meets or exceeds the service quality requirements of the company selling or transferring the exchange or exchanges at the time of acquisition. (b) Provides that this section applies, if two or more telecommunications utilities jointly acquire two or more exchanges with the intent to partition the exchanges among the utilities at a later date, if each acquiring utility and the resulting partitioned acquisitions meet the requirements prescribed by Subsection (a). (c) Requires a telecommunications utility that makes an acquisition to which this section applies to report the acquisition as provided by Sections 14.101 (Report of Certain Transactions; Commission Consideration) or 51.010 (Commission Investigation of Sale, Merger, or Certain Other Actions), Utilities Code, and authorizes such a telecommunications utility to apply to have the commission review the acquisition in accordance with this section. Authorizes the utilities, if the utility makes a joint acquisition as described by Subsection (b), to apply jointly. (d) Requires the commission, if the commission determines that the acquiring utility and the acquisition meet the requirements prescribed by Subsection (a), to approve the transaction and authorize the acquiring telecommunications utility to receive universal service fund disbursements under Section 56.021(1) (Universal Service Fund Established), Utilities Code, for the residual revenue requirements necessary for the utility to obtain a rate of return equal to the rate of return allowed by the Federal Communications Commission for interstate jurisdiction. Provides that the revenue requirement that would otherwise be considered for the acquiring utility is limited only to the extent that the acquiring utility purchased the exchange or exchanges above the selling utility's net book value. Authorizes the commission to consider a rate of return above the federal level if circumstances justify the higher rate and it is in the public interest. Authorizes the commission to approve the review and authorize the universal fund disbursements by administrative review. SECTION 2.Emergency clause. Effective date: upon passage. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2690 modifies the original to conform to Legislative Council format. The substitute amends Chapter 51, Utilities Code, by adding Section 51.011, rather than amending Chapter 53, Utilities Code, by adding Section 53.088, also referred to as Section 53.066 in the original. The substitute replaces proposed Section 53.088(a) (Section 53.066(a)), Utilities Code, in SECTION 1 of the original with proposed Section 51.011(c), Utilities Code, in SECTION 1 of the substitute, to require a telecommunications utility (utility) that makes an acquisition to which this section applies, rather than a utility reporting its acquisition or purchase of an exchange or exchanges under Sections 14.101 (Report of Certain Transactions; Commission Consideration) or 51.010 (Commission Investigation of Sale, Merger, or Certain Other Actions), Utilities Code, to report the acquisition as provided by Sections 14.101 or 51.010. The substitute authorizes the utility to apply to have the commission review the acquisition in accordance with this section, rather than authorizing the utility to elect to be subject to Public Utility Commission review under this section to the extent an acquisition qualifies herein and the utility makes the commitment specified herein. The substitute further authorizes the utilities to apply jointly if a joint acquisition as described by Subsection (c) is made.