SS/SCS/SB 507 - This act makes numerous changes in the Public Service Commission's regulation of telecommunication companies.

DEFINITIONS The act defines basic local telecommunications service, electronic publisher, electronic publishing services, long run incremental cost and large (more than 100,000 access lines), and small (less than 100,000 access lines) local exchange telecommunications companies (LECs). Southwestern Bell, GTE and United are large LECs, all other companies are small LECs

ELECTRONIC PUBLISHING Until Feb. 7, 2000, incumbent LECs must have separate subsidiaries for electronic publishing services. This provision shall not prohibit the providing of Internet services.

PRICING FLEXIBILITY: In exchanges where an alternative LEC is certified, the PSC has forty-five days to approve or reject proposed tariffs as follows: (a) for services proposed on an exchange-wide basis, tariffs that price local or access services differently in the exchange are considered to be in the public interest. (b) for services which are proposed to be provided in an area smaller than an exchange, or to groups of customers, the PSC shall approve a proposal for a different local or access service if it is in the public interest to do so. Upon approval of the small geographic area or other market segmentation, all certified local exchange carriers (LECs) may file tariffs to provide that service in the smaller area.

The LEC shall provide the services to all similarly situated customers in the approved service area, and unless a service is competitive, an incumbent LECs cannot price below long run incremental cost. Customer specific pricing for central office based switching systems and private line and special access services is authorized if it is equally available to all LECs. If pricing rules are violated, a company can be fined three times the revenue received from the activity or its gross jurisdictional revenues for the proceeding 12 months.

PRICE CAP REGULATION The PSC may employ price cap regulation by establishing maximum prices for telecommunications services of incumbent LECs. A large incumbent LEC will be priced regulated when the PSC determines an alternative LEC is certified and is providing local service in the incumbent LEC's service area. A small incumbent LEC may be price regulated after written notice to the PSC, if an alternative LEC has been certified and is providing local service in the incumbent LEC's area. After election to be price regulated, the incumbent LEC will remain subject to that regulation.

The maximum prices established shall be those in effect on December 31 of the year preceding the year the company becomes price regulated. The maximum prices for local and access services of small incumbent LECs may not be changed for 12 months, and large incumbent LECs may not change these maximum prices prior to Jan. 1, 2000. Thereafter, maximum local and access prices of an incumbent LEC may be annually changed by one of the following indexing methods: (a) by the change in the telephone service component of the Consumer Price Index (CPI-TS) or (b) upon approval by the PSC, by the change the Gross Domestic Product Price Index (GDP-PI) for the proceeding 12 months minus the FCC's productivity offset and adjusted for exogenous factors. Exogenous factors means the cumulative impact on an LECs intrastate regulated revenue requirement of more than three percent and does not include the effect of competition on a company's revenues or assessments under the Universal Service Fund. A company may request from the PSC a different productivity offset.

Incumbent LECs can change prices on thirty days notice so long as the prices do not exceed the established maximums. Each service of an incumbent LEC shall be classified as "competitive" in any exchange in which an alternative LEC has provided local service for five years unless the PSC determines that effective competition does not exist. The PSC shall review the state of competition in each exchange and determine within five years whether effective competition exists. If competition exists, the LEC can adjust prices for competitive services up or down as necessary. If competition does not exist, the incumbent LEC will be bound by the long run incremental cost price floor and price caps.

The PSC will continue to have jurisdiction over quality of service and companies will continue to comply with rules relating to minimum basic service requirements.

An incumbent LEC may reduce intrastate access rates to 150% or less of its interstate access rates. An incumbent LEC will have four years to make "rebalancing" adjustments whereby local rates are increased to compensate for losses due to access rate reductions. Not earlier than Jan. 1, 1997, an incumbent LEC that reduces its access charges may increase the maximum monthly local rate by up to one dollar and fifty cents. A large incumbent LEC that increases its local rate must also decrease rates for intraLATA interexchange services by at least ten percent. Within one year the PSC must investigate the access rate decrease and local rate increase. If further rebalancing is justified, the PSC will allow the company to increase its maximum monthly average statewide local rate by up to one dollar and fifty cents annually for the next three years to offset the remaining three- quarters of the total access revenue loss. The PSC can stop the access decreases and local increases at any level it determines to be cost-justified. The total local revenue increase cannot exceed the total access revenue decrease.

Any telecommunication company experiencing a decrease in access costs must flow the decrease through to its customers by reducing intrastate toll rates.

The maximum prices for non-basic services of a small incumbent LEC shall not be changed for 12 months, or on an exchange basis, until an alternative LEC is providing service in the exchange. The maximum prices for non-basic services of a large incumbent LEC shall not change until Jan. 1, 1999 or on an exchange basis, until an alternative LEC is providing service in the exchange. Thereafter, the maximum allowable prices for an incumbent LEC's non-basic services may be annually increased by eight percent upon filing of notice with the Commission and filing a tariff establishing maximum rates at such level. New services can be introduced.

The incumbent provider will be the carrier of last resort for essential local service in areas subject to competition for local service. The PSC may designate another carrier of last resort for any exchange or other area.

A price regulated incumbent LEC may request the PSC to grant rate relief under regulatory methods that allow for rates based on a reasonable average return on property if it is determined that the incumbent LEC's financial condition prevents it from attracting sufficient capital or providing adequate service. These rates will be maximum rates and cannot be increased without PSC consent.

UNIVERSAL SERVICE FUND The act establishes a Universal Service Board, to consist of the Public Counsel and the members of the Public Service Commission. The Board shall establish a "Universal Service Fund", which shall be administered by a neutral party, selected by the Board, without financial interest in telecommunications companies. All telecommunications providers shall contribute to the fund. The fund shall be used to ensure affordable and reasonable rates in high cost areas and to assist low-income customers and disabled customers in obtaining basic services. The PSC shall determine costs of providing service on a geographic basis and establish an eligibility standard for receiving assistance from the fund.

The Universal Service Fund shall be funded by assessments on all telecommunications companies. Fifty percent of the assessment may be recovered by increasing the maximum prices for any services except residential basic local service. The remaining 50% of the assessment may be included in a company's Universal Service Fund funding requests. Failure to pay an assessment shall result in revocation of certification.

Eligibility for funding shall be determined by the PSC as provided in the act. In areas having more than one carrier of last resort, companies can relinquish carrier of last resort responsibilities so long as one carrier of last resort remains. In areas not subject to local competition, the incumbent LEC will be the carrier of last resort.

If an Federal Communications Commission (FCC) rule prior to Dec. 31, 1997 changes an incumbent LEC's federal Universal Service Fund revenues, the PSC shall either increase the company's maximum local rates, the company's recovery from the state Universal Service Fund, or a combination of both.

CERTIFICATION OF ALTERNATIVE LECS The act removes the existing monopoly status of a company to provide local telecommunications service. The act removes the ban on certification of competitor local telecommunications companies and requires the PSC to establish a process for certification of such competitor companies.

For areas served by large local exchange telecommunications companies, new entrants may be certified and shall file and maintain tariffs with the commission and meet minimum service standards in the same manner as incumbent LECs. For areas served by small local exchange telecommunications companies, new entrants may be certified if the PSC finds that new entrant shall provide and advertise all "essential" services throughout the area, and the new entrant shall file and maintain tariffs with the commission, meet minimum service standards, make reports to the commission and comply with all rules in the same manner as incumbent LECs.

The act adds the following items to the "intent" of Missouri telecommunication law: to promote parity of urban and rural services, to promote economic, educational, health care and cultural enhancements and to protect consumer privacy.

RESALE The act prohibits resale of a telecommunications service to a different class of customer.

TELECOMMUNICATIONS RATES FOR SCHOOLS LECs shall file tariffs for local telecommunications service to public schools at reduced rates and may file tariffs for local telecommunications service to private schools at reduced rates. The PSC shall ensure that all public school districts have access to substantially reduced telecommunications rates.

This act is similar to SB 138 from 1995.
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