Telephone Public Purpose Program: 
California High Cost Fund – A 

Background 

The California High Cost Fund-A (CHCF-A) is a subsidy program based on the principle of universal service -- the concept that basic telephone service should be affordable and ubiquitously available to all members of society. The fund provides a source of supplemental revenues (paid through customers’ telephone bills statewide) to 14 small local exchange carriers (LECs) for the purpose of minimizing rate disparity of basic telephone services between rural and metropolitan areas.

In November 2011, the CPUC opened a Proceeding to review the CHCF-A program in relation to current market conditions including regulatory and technological changes that have occurred since the program was first established by the CPUC in 1987. The proceeding seeks to solicit constructive proposals on whether the CHCF-A program should be modified. In February 2013, the CPUC issued an Interim Decision adopting a one-year freeze in the schedules of general rate cases, the process by which rate increases are considered. The CPUC also put on-hold a provision of the CHCF-A, known as the “waterfall” mechanism, which requires the small telephone companies to take an automatic annual decrease in subsidy levels if they delay filing their general rate case with the CPUC.

On May 22, 2013, the CPUC issued a Ruling to implement SB 379 (PU Code 275) which allows small telephone carriers to earn a profit on their investments in broadband deployment and may increase CHCF-A subsidies. The Ruling identified consideration of additional issues such as:

  • Clarifying definitions of “rural” and “high cost”
  • Inclusion of unregulated affiliate revenues in regulated revenue requirements
  • External funding mechanisms

On December 20, 2013, the CPUC issued at Ruling approving ORA’s and the Small Carriers’ October 24, 2014 Joint Motion for a limited extension of the rate case freeze until June 23, 2014, and a stay on the waterfall mechanism until June 30, 2014. 

In March 2014, the CPUC issued an amended Scoping Memo determining that it would not consider as part of this proceeding the elimination, capping, or consolidation of the fund. It also determined that it would not seek to revise the definition of rural telephone companies or adopt a per-access line support cap. Phase 1 will consider changes to CPUC policies that may be needed as well as address other issues including:

  • Whether broadband revenues/profits should count towards the intrastate revenue requirement.
  • Whether small telephone carrier territory should be opened to wireline competition.
  • How the CPUC should account for federal subsidy changes.
  • What metrics should be used to develop basic rates.
  • Additional safeguards to evaluate reasonable investments in broadband. 
  • Proposals to establish “fair-market rates” for affiliate use of regulated networks.

Phase 2 will address other issues going forward including rate of return, alternative forms of regulation, the future of the rate case process, competition across technologies, and eligibility.

The CPUC held Public Participation Hearings in rural communities around the state between April 17 - May 8, 2014.

In May 2014, the CPUC issued a Ruling updating the proceeding schedule.

The CPUC held Evidentiary Hearings September 2 - 4, 2014.


ORA Policy Position 

In order to optimally utilize ratepayer subsidies, ORA supports CHCF-A improvements that will result in program and rate case processing efficiencies. Specifically, ORA recommends that the CPUC should: 

  • Count the net broadband revenue of each small telephone company affiliate against the company’s revenue requirement, as a condition of participating in the CHCF-A Program.
  • Adopt the Federal Communications Commission’s (FCC) standards to limit the company’s corporate operations expenses in order to incent these companies to operate more efficiently. 

See ORA's July 11, 2014 Testimony.  

See ORA’s August 15, 2014 Reply Testimony

See ORA’s September 26, 2014 Opening Briefs  


Proceeding Status 

See the Proceeding docket.