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STATE OF MAINE
PUBLIC
UTILITIES COMMISSION
242 STATE STREET
18 STATE HOUSE STATION
AUGUSTA, MAINE
04333-0018
THOMAS L .
WELCH STEPHEN
L. DIAMOND
CHAIRMAN SHARON M. REISHUS
COMMISSIONERS
February 4, 2005
The
Honorable Phillip Bartlett II, Senate Chair
The
Honorable Lawrence Bliss, House Chair
115
State House Station
Augusta,
ME 04330
Dear
Senator Bartlett and Representative Bliss:
Pursuant
to P.L. 1998, Chapter 764, “An Act to Delay the Implementation of Performance
Budgeting for State Government,” I am attaching our draft Strategic Plan for
Fiscal Years 2006 and 2007. This is an
updated version of the report that we submitted for Fiscal Year 2004 and 2005.
In
this plan we have reviewed both internal and external forces that impact our
work and our approach to meet the challenges that confront us. As in the past, we will work closely with
you to ensure that the Commission meets our legislative mandate.
We
believe that we have many useful measures, tracking state, regional, and
national statistics to help us determine the extent to which we are meeting our
goals and objectives. Unfortunately, we
have had questions about the accuracy of data provided by federal government
agencies that we have used in the past.
We are currently evaluating the data and will work to have it corrected
by the responsible agency. We also
have questions about the usefulness of some of our past measures used to
determine our performance. In this
report we have stopped using some measures that we have found to be inadequate
for our purposes and have added others.
We are regularly reviewing measures that we report to you in an effort
to provide you with the best information available for you to assess our
efforts. Please let us know if the
measures we are using are useful or whether there are other measures that you
would like us to develop.
Please
call me if you have any questions please contact Marjorie McLaughlin at
287-1365 or me at 287-1353.
Sincerely yours,
Dennis L. Keschl,
Administrative Director
Maine Public Utilities
Commission
PHONE: (207) 287-3831
(VOICE) TTY:
1-800-437-12 FAX: (207) 287-1039
MAINE PUBLIC UTILITIES COMMISSION’S
2002 STRATEGIC PLAN
for
Fiscal Years 2006 and 2007
due
pursuant to
P.L. 1998, CHAPTER
764
December 1,
2004
Executive
Summary
P.L. 1995,
Chapter 704, “An Act to Implement Performance Budgeting in State Government,”
established a time line and system for implementing performance budgeting by
the biennium 2000-2001 beginning with a comprehensive strategic plan for each
agency. P.L. 1998, Chapter 764, “An Act
to Delay the Implementation of Performance Budgeting for State Government,”
delays the implementation to allow departments and agencies of State Government
time to further refine strategic plans and to solicit additional input from the
Legislature. This draft outlines the
Maine Public Utilities Commission’s (the Commission’s) strategic plan, revised
pursuant to P.L. 1998, Chapter 764 and guidance from the Bureau of the Budget,
and provides our current strategic planning mission statement, goals, and
objectives for the 2005 – 2006 (the FY2006 and FY2007 biennium). This draft is subject to revision, as deemed
appropriate, based on input from the Legislature and other stakeholders.
The
Commission’s strategic planning mission statement is:
The
Maine Public Utilities Commission regulates utilities to ensure that safe, adequate
and reliable utility services are available to Maine customers at rates that
are just and reasonable for both customers and public utilities. For the purposes of this document, “utility
services” means electric, gas, telecommunications and water services.
The
Commission’s goals, derived directly from statute, are:
To
assure safe, reasonable, and adequate electric utility services at rates which
are just and reasonable.
and,
To
develop and implement electric energy conservation programs… (that must be)
consistent with the objectives of an overall energy strategy developed by the
Commission and be cost effective.
This
strategic plan continues to reflect our preference for competition and market
mechanisms to meet our goals to reduce the costs of utility services and to
provide superior service quality and reliability for consumers. Meeting our goals will help to improve
Maine’s regional, national, and global competitiveness and improve its business
climate and overall economic health.
II. ANALYSIS
OF ENVIRONMENT
In this
section we briefly discuss the Commission’s evolving mandate, analyze the
trends that shape the Commission’s ability to carry out its duties, and
summarize some of the Commission’s recent responses to the changing regulatory
environment.
A. Commission Profile
The
Commission was created in 1913 to regulate monopoly providers of essential
services identified by the Legislature.
The Commission’s activities are governed by Title 35-A of the Maine
Revised Statutes. Section 101 of Title
35-A provides that “[t]he basic purpose of this regulatory system is to assure
safe, reasonable and adequate service at rates which are just and reasonable to
customers and public utilities.” MRSA
35-A §3211-A requires that ”the
commission shall develop and, to extent of available funds, implement
conservation programs…consistent with the objectives and overall energy
strategy developed by the commission and be cost effective…” The Commission is
working to meet the requirements of this mandated program.
Three
Commissioners, who are nominated by the Governor and confirmed by the
Legislature, head the Commission. The
Governor designates one of the Commissioners as Chairman. The Commissioners serve staggered six-year
terms.
The
Commission, which is authorized 67 full-time positions, currently employees 60
full-time employees. These employees
are allocated among the Commission’s six divisions: Legal, Finance, Technical
Analysis, Consumer Assistance, Energy Programs, and Administrative.
As of
December 31, 2004 there were nearly 645 certified public utilities in the State
of Maine over which the Commission has jurisdiction. These public utilities fall into the following categories:
Electric 13
Communications:
Local Exchange Carriers 23
Interexchange Carriers 212
Competitive Local 13
Competitive Local and IXC 66
Facilities Based IXC 16
COCOTs[1] 132
Gas 3
Water 154
Water Carriers 13
______________
Total 645
The
Commission continues to process new requests for authority to provide utility
service, particularly from telecommunication carriers.
The Commission had three sources of funding in FY04: a Regulatory Fund, funding for Efficiency
Maine, and a federally fund State Energy Program Grant. Funding for the Regulatory Fund and
Efficiency Maine are derived from an assessment on utilities pursuant to 35-A
M.R.S.A. § 116. In FY04, the
Commission was authorized to spend $6,435,212 from its Regulatory Fund and
actually spent $5,379,918. We were
authorized to expend $7,690,314 for Efficiency Maine, and spent
$4,500,353. The State Energy Program was
authorized to expend $1,884,568 in federal grant money and actually spent
$770,340. The difference in authorized
versus actual expenditures in this program is largely due to encumbrances that
will be paid in FY2005
During the
first 11 months of 2004, the Commission had docketed 809 cases and closed 791
with approximately 171 pending on December 21, 2004. During 2003, the Commission docketed 919 cases and closed
1007. See Chart 1 (MPUC Docketed Case
Trend, 1983 to present).
B.
External Assessment:
The events
of September 11, 2001 have prompted a need for utility regulators throughout
the country to work more closely with our federal and state counterparts, and
with the utility industry as a whole, to ensure that the critical utility
infrastructures that we rely on are less vulnerable to such attacks. We are participating in the New
England Governor’s Conference and Maine Emergency Management Agency’s (MEMA’s)
emergency planning efforts and have expanded our ability to meet any security
challenges that may arise in the state or region. Our role is to ensure that utilities are adequately prepared to
meet the threat of terrorist attacks, winter fuel shortages, or drastic price
spikes, so that, to the extent possible, harm and dislocation to Maine’s
citizens and businesses may be avoided or mitigated. We are continually working to improve communications with all of
our utility sectors. We are active on
the MEMA Emergency Response Team (ERT)
and have developed internal emergency response plans that will allow us to
response more quickly to any events that may occur and are participating in
routine and major exercises of the State’s emergency response
capabilities. We continue to expand our
Geographical Information Systems (GIS) capabilities. This technology is growing in importance as federal, state, and
local governments move to improve their ability to respond to catastrophic
events either man-made or naturally caused.
I. Electric Industry
During its 1997 session, the Legislature enacted P.L. 1997, ch. 306, codified at 35-A M.R.S.A. §3201-3217 (the Restructuring Act), which directed comprehensive restructuring of Maine’s electric utility industry. Since then, the Public Utilities Commission (Commission) has disaggregated the vertically integrated electric utilities into delivery and generation functions, established the rates of transmission and distribution (T&D) utilities, established rules that govern the activities of competitive electricity providers and utilities, purchased standard offer service through competitive bid processes, monitored retail market development, and participated in regional wholesale market activities that affect Maine’s electricity consumers.
Electricity
prices include four distinct components – transmission rates, distribution
rates, stranded cost rates, and energy prices.
The first three, bundled together, comprise the rate charged by the
transmission and distribution (T&D) utility. Transmission rates cover the cost of constructing and operating
the transmission system and are regulated by the Federal Energy Regulatory
Commission (FERC). Distribution rates
cover costs incurred by the T&D utility to construct and operate the local
distribution system and are regulated by the Public Utilities Commission
(Commission). Stranded cost rates
reflect the net, above-market costs for generation obligations that utilities
incurred prior to industry restructuring, and are regulated by the Commission. Finally, energy prices are unregulated retail
prices charged for generation service by competitive electricity providers
(CEPs) that, in Maine’s restructured environment, operate in the competitive
market. The Commission licenses CEPs. Consumers may obtain generation service
directly from a competitive market provider or through standard offer service
that is obtained by the Commission through a competitive bid process.
The Commission prefers incentive rate plans to traditional rate-of-return regulation as the best means to ensure that customers receive adequate T&D service at just and reasonable rates, and has implemented incentive rate plans for the distribution rates of the two largest T & D utilities in Maine, Central Maine Power Company and Bangor Hydro-Electric Company. The Commission has taken steps to ensure that the utilities subject to incentive rate plans maintain an adequate level of service quality. Due to the passage of P. L. 2003, c. 45, section 1, the Commission must conduct a rate-of-return rate case for CMP and BHE before extending the current or implementing a new incentive rate plan.
The Restructuring Act allows CMP, BHE and MPS to recover stranded costs in the rates they charge for delivery service. Stranded costs reflect the net, above-market costs for generation obligations that utilities incurred prior to industry restructuring. For example, stranded costs include the difference between payments the utilities must make pursuant to pre-existing purchased power contracts (primarily with qualifying facilities (QFs)) and the current market value of that power. Stranded cost rates are re-set for CMP, BHE and MPS every two to three years. The adjustments coincide with the sale terms of the utilities’ QF entitlements, because the amounts received from the entitlements sales offset stranded costs and are a significant component of total stranded cost rates.
Because of the nature of stranded costs, it is not possible to set
stranded cost rates using an incentive mechanism. Therefore, the Commission must conduct traditional,
rate-of-return rate cases to set stranded cost rates every two or three years
(albeit on a smaller scale). Stranded
costs are declining, but are expected to remain significant until at least
2015.
After almost five years of operation, the retail market for Maine’s medium commercial and industrial (C&I) and large C&I customers[2] has exhibited a reasonable level of competitive activity, and bidding for standard offer service has been healthy. In addition to attracting a significant number of bidders, the standard offer process resulted in different providers winning the bids during each of the solicitations in 2004. Increases in the cost of wholesale electricity, largely caused by increases in natural gas prices, have caused Maine’s CEP and standard offer prices to increase.
The market continued to offer minimal competitive choice for residential and small commercial customers, but a low standard offer price obtained in previous years contributed to relatively low overall electricity prices. The current arrangement for residential and small commercial standard offer service for BHE and CMP will terminate in 2005, and the Commission recently conducted a bid process to obtain residential and small commercial standard offer service for a term beginning March 1, 2005. Competition among standard offer service bidders remained vigorous in the CMP and BHE territory during the recent bidding process, although standard offer prices will be higher beginning on March 1, 2005 because of the wholesale price increases. The Commission adopted a three-year staggered approach by also accepting bids for a portion of the standard offer load for the 12-month periods beginning March 1, 2006 and March 1, 2007. The Commission will procure the remainder prior to the start of each period. This approach will help moderate volatility in standard offer prices resulting from future changes in wholesale prices, but will require the Commission to conduct a bid process annually for the residential and small commercial customers.
During 2003, “green” products, featuring hydroelectric and biomass
generation, became available through residential and public sector aggregation
groups. In early 2004, additional green
supply options were developed, including products containing wind generation
and low-impact hydroelectric generation, and by the end of 2004, six
green generation products were available to Maine consumers. These activities
have continued a modest but steady gain in recognition and customer
support. Over 5,000 customers currently
purchase green power products, and a number of well-known businesses, as well
as the State of Maine, have publicly announced green purchases.
The
wholesale market operates under a set of rules approved by the Federal Energy
Regulatory Commission (FERC). New
England’s Independent System Operator, ISO New England (ISO-NE), is the
day-to-day operator of the electric grid and the generation markets. ISO-NE, in turn, operates under contract
with the New England Power Pool (NEPOOL), a New England organization comprised
of generators, competitive electricity providers, T&D utilities, municipal
electric systems, and representatives of end-use customers. NEPOOL or ISO-NE files changes to market
rules for approval by FERC. These
changes are developed through NEPOOL committees, each of which is chaired by
ISO-NE. In some cases, these filings
have close to unanimous support. In
others, there is a wide range of conflicting positions. While the Commission is not a NEPOOL member,
it often takes an active role in the committees. The Commission also intervenes and takes positions at FERC on
matters affecting (1) the competitiveness of the wholesale electric markets,
(2) reliability, and (3) prices paid by Maine electricity consumers. The Commission anticipates that our work at
ISO and FERC will continue for at least the next few years while the
competitive market issues are being resolved.
The “northern”
Maine region presents unique electricity reliability and market issues. By northern Maine, we mean the service areas
of MPS and three consumer-owned utilities: Houlton Water Company, Van Buren
Light and Power District, and Eastern Maine Electric Cooperative.[3] In contrast to the rest of Maine, which is
electrically part of the ISO-NE region, northern Maine is electrically part of
the Canadian Maritimes region. The
Maritimes region also includes the electric loads and generation of New
Brunswick, Nova Scotia, and Prince Edward Island. Load and generation in northern Maine are connected to the rest
of Maine and New England only by transmission through New Brunswick. Northern Maine load is supplied by a
combination of generating plants located in-region and in New Brunswick. The Northern Maine Independent System
Administration (NMISA) administers the bulk power and transmission systems for
the region.
There have been only two suppliers active in the northern Maine
retail market since retail access began – Energy Atlantic (EA) and WPS Energy
Services, Inc. (WPS-ESI). Energy
Atlantic no longer accepts new customers in northern Maine and WPS-ESI has been
the primary standard offer service provider in all rate groups since
restructuring began. Thus, the retail
market in northern Maine is considerably less competitive than the market in
the remainder of the State. While it
does not appear that this has resulted in higher prices for consumers, it is a
subject of concern.
Measures that would make northern Maine part of a larger market (e.g., a
transmission line connecting northern Maine to the New England grid or an open
market in New Brunswick) may result in increased interest in the region by
competitive electricity providers.
During 2004, MPS announced plans to increase the capacity of generation
that could flow between MPS and New Brunswick by increasing the transmission
capacity between the two regions from 200 to 250 MW.[4] This would improve the ability of generation
located in southern New England and New Brunswick to reach northern Maine,
thereby potentially increasing the number of suppliers willing to serve the
northern Maine market. The
Commission is reviewing the MPS proposal.
In
addition, BHE has filed for permission to build a second tie-line between New
Brunswick and the ISO-NE grid. The proposed tie-line would increase the
north-to-south capacity from 700 to 1000 MWs and the south-to-north capacity
from 100 to 400 MWs. Under BHE’s
proposal, the tie-line would run through northern Maine but would have no
connection to the grid in northern Maine.
The line could, however, advantage northern Maine by allowing more
electricity to flow between New England and New Brunswick. Furthermore, the new line would provide the
opportunity for future construction to link the line with the northern Maine
grid. The Commission is reviewing this
BHE proposal.
Finally, in the second session of the 120th
Legislature, the Legislature passed P.L. 2001, ch. 624, (the Electric Energy
Conservation Act), directing the Commission to develop and implement cost
effective electric energy conservation programs. The Commission responded by implementing 12 interim programs that
resulted in 5,827 MWh of annual energy savings to Maine consumers. From 2003 to 2004, the Commission
streamlined and converted the 12 interim programs to 6 ongoing programs. The estimated annual savings from the first
year of on going program operation is 17,918 MWh. More detail on the structure of each program and individual
program budgets can be found in the Commission’s Efficiency Maine 2004 Annual Report.
2. Telecommunications Industry
Since the passage of the federal
Telecommunication Act of 1996 (TelAct), the Commission has been dealing with
significant changes in the telecommunications industry, and the level and pace
of change show no signs of abating. The
telecommunications industry has undergone major changes in its operations and
structure, driven by changes in technology, customer expectations, and public
policy, as evinced through regulatory mechanisms. The breakup of AT&T in 1984 largely paved the way for the
opening of the toll market to competition. The purpose of the TelAct is to
transform the local exchange market into a competitive environment through: 1)
interconnection of facilities based competitors’ networks to the incumbent
local exchange carrier’s (ILEC) network; 2) resale of the service provided by
the ILEC; and 3) use of elements of the ILEC’s network by competitors in
conjunction with some facilities provided by the competitors themselves.
The TelAct established the general principles for competition,
but it left to the Federal Communications Commission (FCC) and state regulatory
agencies, such as the Maine Commission, the responsibility to determine the
specific policies and rules needed to implement the law. This lack of specificity has created
tremendous uncertainty and led to continuing controversy about how the TelAct
should be interpreted and implemented.
The FCC has issued numerous orders attempting to codify the rules under
which ILECs, primarily the former Regional Bell Operating Companies (RBOCs),
must allow Competitive Local Exchange Carriers (CLECs) to enter the local
market. Unfortunately, the language of
the TelAct as enacted resulted from numerous compromises by competing political
interests and is not a model of clarity.
Therefore, nearly all FCC decisions that attempted to interpret and
implement the principles of the TelAct were appealed to federal courts. The ILECs, CLECs, state regulators and
telecommunications users have sought court review of various aspects of the
FCC’s decisions. The federal Circuit
Courts and the U.S. Supreme Court have, at various times, upheld, vacated and
remanded parts of all the FCC orders.
This constant battling at the FCC and in the federal courts has created
shifting legal and policy foundations for the implementation duties that must
be carried out by state regulators.
The most recent attempt by the
FCC to establish rules for local competition came in the form of the Triennial
Review Order (TRO), issued in August 2003.
In the TRO the FCC attempted to respond to mandates established in
decisions rendered by the U. S. Supreme Court and the D.C. Circuit Court of
Appeals in cases involving appeals of earlier FCC orders. As with the other FCC orders, various
parties immediately filed appeals with the D.C. Circuit Court. In March 2004, the D.C. Court issued its
opinion in which it upheld, remanded and vacated various portions of the
TRO. Recently, the U.S. Supreme Court
refused to accept the D.C. Circuit Court decision for review, thus allowing the
Circuit Court decision to become final.
In response to the Court’s vacate and remand decisions, the FCC issued a
set of Interim Rules that are designed to be in place only until the FCC can
attempt once again to issue permanent rules that will pass muster with the courts.
In addition to the uncertainty
created by the FCC and court actions, there is speculation among many industry
participants and observers that Congress might modify the TelAct in its next
session. Thus, the Commission is faced
with the potential for even greater upheaval in the legal and policy bases on
which it conducts its required functions in implementing the TelAct.
The TelAct allowed Verizon, as
an RBOC, to enter the business of originating interLATA telecommunications
traffic in Maine only after it proved that the local exchange market in Maine
was fully and irreversibly open to competition. While the FCC has authority under the TelAct to grant interLATA
entry, the FCC must consult with the affected state regulatory agency and the
United States Department of Justice prior to approving the application. With the Commission’s support, Verizon filed
its application to offer interLATA services in Maine with the FCC on March 19,
2002. On June 19, 2002, the FCC granted
Verizon’s request. Since then, Verizon
has offered interLATA (in addition to intraLATA) toll service to customers in
Maine. The ability of Verizon to offer
a combined package of local and toll services benefits telecommunications users
in Maine because it provides more choices and increases competition.
A key condition of the
Commission’s decision to support Verizon’s request for interLATA authority was
the adoption of a Performance Assurance Plan (PAP) that sets standards against
which the Company’s performance in meeting its obligations to CLECs is
measured. The PAP is intended to
prevent “backsliding“ on the part of Verizon after it gained interLATA
authority and contains performance standards and applies automatic penalties if
Verizon fails to meet the standards for over 200 individual performance metrics
involving virtually all aspects of the process by which CLECs order and Verizon
provisions and maintains service to end user customers of the CLECs, using some
or all parts of Verizon’s facilities and equipment. The Commission adopted a PAP modeled after one previously adopted
in other states served by Verizon, but with some unique statistical methods
used to measure the Company’s performance.
The Commission has monitored the workings of the PAP and is in the
process of evaluating the results in order to determine if changes in any
aspect of the PAP may be necessary.
The establishment of the rates that Verizon charges CLECs for the use of portions of its network created considerable controversy. Those network pieces are known as unbundled network elements (UNEs), and the economic principle established by the FCC for setting their prices is known as the total element long-run incremental cost (TELRIC). The Commission employed FCC guidelines to set TELRIC-based rates for UNEs in Maine just prior to the time that it recommended that the FCC approve Verizon’s request for interLATA authority. UNE pricing is an important input into most competitors’ cost of service. Because most CLECs use some UNEs in providing their service, and UNE rates help determine whether competitive entry will occur in the State, in setting UNE prices, the Commission balanced the competing interests of Verizon and the CLECs.
The increase in competition has
caused a dramatic shift in the type of cases that the Commission must
decide. Today, rate cases are limited
to certain situations that will be described below. Instead, the Commission spends considerably more time addressing issues
related to competition and the associated terms and conditions applicable to
wholesale services provided by Verizon to CLECs who want to compete. Currently each CLEC operating in Maine has
an agreement with Verizon that sets out the prices (based on the Commission’s
UNE pricing order) and the terms and conditions under which the CLECs can
obtain UNEs and can interconnect their networks with Verizon’s. A CLEC may opt into an existing agreement,
or it can negotiate its own with Verizon.
As part of its recommendation
that Verizon be allowed to enter the interLATA toll market, the Commission
required Verizon to file a tariff that spells out all its prices and terms and
conditions for providing wholesale services to CLECs. Having a wholesale tariff approved by the Commission would alleviate
the need for CLECs to negotiate individual interconnection agreements with
Verizon. Verizon initially made its
wholesale tariff filing over two years ago, but because of numerous changes in
federal rules and policies (as discussed earlier), as well as other intervening
cases with shorter deadlines, the tariff has been revised several times, and
the Commission has not yet been able to bring the matter to a conclusion. The parties have now identified the issues
that must be decided, and the Commission will move forward to complete the
wholesale tariff case in a timely fashion, so that current and potential
competitors will be able to know with certainty the UNEs that are available,
and the prices and terms and conditions under which they are available. As described earlier, the standards established
by the FCC for the provision of UNEs are not completely settled, and future
actions by the FCC, federal courts and/or Congress could again disturb the
underpinnings of the wholesale competition.
Maine CLECs have shown interest
in competing in an economically rational fashion and in bringing voice and
broadband services to all parts of Maine.
In order to do so, the CLECs need access to some specific parts of
Verizon’s network, but the rules governing the provision of those elements are
not completely settled, and the FCC is in the process of re-writing its
rules. We will do our best to interpret
the rules and adjust to any changes that occur. We will also use our authority under State law to require that
certain UNEs be made available, even when those elements are not required under
federal rules, if we determine that their availability is a necessary
ingredient for local competition in Maine.
Of course, the Commission cannot contravene federal law or FCC rules,
but we will make independent choices to implement the Maine Legislative policy
of bringing advanced telecommunications services to residents of all areas of
the State.
The increase in competition in
the telecommunications industry has also created some challenges for consumers,
who are vulnerable to a very small, but highly visible, number of unscrupulous
competitors. The two most common
tactics used by these types of companies are known as “slamming” (the
unauthorized switching of a customer from one carrier to another) and
“cramming” (the inclusion of unauthorized charges on a customer’s bill). Both slamming and cramming are illegal, but
the added complexity of the telecommunications marketplace and the
proliferation of new carriers and services create an environment that can be
exploited by these unscrupulous carriers.
The Commission spends a considerable amount of time and resources to
investigate claims of slamming and cramming by customers and to stop the
activities and gain restitution for the effected customers. The Commission will increase its efforts in
these areas as necessary. As
competition replaces the old monopoly regime in telecommunications, providing
information to customers about their options and about potential dangers will
be one of the most important functions performed by the Commission.
35-A M.R.S.A. § 7101-B required
that, beginning in 1999 and every two years thereafter, the Commission set the
intrastate access charges that interexchange carriers pay equal to or less than
the interstate access charges that the FCC establishes. In 1998, the Commission approved a
stipulation with Verizon that implemented the first required reduction in
access charges and simultaneously increased basic rates to allow Verizon to
recover a portion of the lost access revenue.
In 2001, the Commission, as part of its AFOR renewal for Verizon,
allowed another relatively small local rate increase to offset a portion of the
revenue the Company lost because of the intrastate access rate cuts that
occurred on May 30, 2001.
The access parity statute was
amended in 2003, allowing the Commission to spread out the required 2003
intrastate access rate reduction over two years, or until May 2005. If any local rate increase needed to offset
the access rate reduction exceeds 50% (including the Maine USF), the Commission
is required to phase in the access reduction and the local rate increase. If interstate access rates are reduced below
the January 2003 levels, the Commission can order additional reductions to
intrastate access rates, but it must consider the effect on local rates before
implementing the rate changes.
For Verizon, the Commission
approved a phase-in of the access rate reductions and the local rate increases
during 2004 and 2005, as permitted under the statute. The local rate increase is considered an exogenous change under
Verizon’s AFOR. The AFOR itself is
scheduled to expire in June 2006, and during 2005, the Commission will begin to
examine the form of regulation that will apply to Verizon after the current
plan ends. The future regulatory scheme
will be influenced by many factors, including competition and technological
changes.
For the independent telephone companies (ITCs), the access rate
reductions have been implemented with a series of stipulations that took into
account the earnings of each ITC.
Companies with “excess” earnings prior to the date of the initial access
rate reductions generally agreed not to file rate cases to recover the lost
revenue for a certain period of time after the access reductions. ITCs without over earnings were allowed to
phase in the initial round of access rates reductions while the Commission
completed work on the Maine Universal Service Fund (MUSF). Under the amended statute, rate realignments
will continue with access rate reductions and local rate increases occurring
through May 2005. Also, as discussed below, basic service
calling areas (BSCA) have been modified to bring more uniformity throughout the
State, and rate groups (based on number of customers in the BSCA) have been
eliminated. In order to offset the
revenue losses caused by the access reductions, BSCA modifications and rate
group elimination, the Commission implemented a policy of requiring ITCs to
raise their local rates to the Verizon level before they can receive MUSF support. About half of the ITCs currently receive USF
funding for part of their revenue requirements, and some additional companies
will receive funding as access rates continue to decline, while local rates are
capped at the Verizon level. The
Commission will examine the revenue requirements situation for each of the ITCs
when it is appropriate. Companies may
seek USF support, but before it is granted, they will have to undergo some type
of earnings investigation.
The Commission contracts with an
independent Joint Administrator for the MUSF and the Maine Telecommunications
Education Access Fund (MTEAF), which provides funding for advanced
telecommunications services to schools and libraries. LECs other than Verizon obtain support from the MUSF in order to
meet their overall revenue requirements (as determined by the Commission in a
rate case or similar proceeding) while maintaining basic exchange rates that
are no higher than those charged by Verizon.
The Administrator collects assessments, including the costs associated
with administering the Fund, from all providers of intrastate
telecommunications services, including paging companies and mobile carriers, as
provided in the authorizing statute.
The size of the MUSF might gradually expand over the next several years
as more companies become eligible for support and the Commission completes the
necessary procedures to determine the amount of support needed.
During 2002, the Commission
examined the matter of BSCAs, which are sometimes referred to as extended area
service (EAS). Concerned that the BSCA
Rule did not sufficiently address the expanding calling area needs of local
telephone customers, and that there was a lack of consistency in local calling
areas around the State, the Commission adopted changes to the BSCA Rule,
Chapter 204, to resolve many of the problems that were identified. The most significant change made to the rule
required the addition of all contiguous exchanges that were not already
included in an exchange’s BSCA to the Premium option for that exchange. Adding contiguous exchanges alleviated
virtually all of the problems areas identified in the inquiry. The Commission implemented the changes
required under the revised BSCA Rule in 2003, and it will address any “outlier”
calling area situations on a case-by-case basis. In early 2005 the LECs will also file reports that show the
effect on their revenues of implementing the BSCA changes, and any required
true-up will occur shortly thereafter, most likely simultaneously with the
access reductions in May 2005.
Probably the most important
agent for change in the telecommunications industry is technology, which is
constantly providing additional choices for consumers and new challenges for
policy makers and regulators. Use of
the traditional public switched telephone network (PSTN) is declining as more
and more voice traffic and Internet access moves onto the wireless service
networks or is provided as part of broadband service. Wireless (cellular and Personal Communications Service) use has
expanded rapidly over the past five to eight years, and now there are more
wireless phones in use in Maine than there are wireline phones. The majority of wireless customers are using
those phones in addition to their wireline phones, rather than in place of
them, although there are some customers who no longer use wireline
services. As wireless phones become
even more sophisticated and add numerous features, including video and
broadband Internet access, the trend toward wireless usage will no doubt
continue. In Maine, wireless service
providers are, by law, not considered to be public utilities, except under
certain very specific instances.
Further, federal law prohibits states from regulating wireless entry or
rates, except under certain limited circumstances.
The technological change that
likely will have the greatest influence on the manner in which
telecommunications traffic is transported and regulated involves the use of
Internet protocol. Voice Over Internet
Protocol (VOIP) transforms a voice telephone conversation into packets of
digital information, similar to other Internet transmissions. The packets travel over private or public
Internet networks to their destinations, where they are assembled into a
coherent speech pattern, so they are indistinguishable from traditional
telephone service to the users on either end of the conversation. VOIP is added onto a broadband connection,
and it is a much more efficient way of transmitting voice communications,
because unlike traditional voice phone calls, an individual circuit is not kept
open for the duration of the call. As
VOIP equipment and functions improve, and more customers subscribe to a
broadband connection, additional voice traffic will very likely migrate to VOIP
service. Because VOIP telephone service
is considered part of the Internet, the FCC has declared it to be interstate in
nature, and thus out of the reach of state regulators. Further, a federal district court has
prohibited one state from regulating VOIP service in any way.
This major technological change
is likely to substantially impact the functions of the Commission, as
competition and new ways of providing services (indeed, even new services and
combinations of services) continue to alter the type and manner of regulation. Traditional monopoly regulation will
continue to be replaced by the need to educate consumers and prevent
unscrupulous, unfair and illegal competitive activities. Establishing the conditions under which
competition can flourish (the so-called “level playing field”), while
protecting the interests of customers who don’t have access to competitive
options, will become the focus of telecommunications regulators. The Commission will continue to examine
whether market forces are sufficient to bring advanced telecommunications
capabilities to all citizens of Maine, or if there are steps the Commission can
take to encourage broadband deployment.