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  S.B. No. 586
 
 
 
 
AN ACT
  relating to the distribution of universal service funds to certain
  small and rural incumbent local exchange companies.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 56.032, Utilities Code, as effective
  September 1, 2017, is amended to read as follows:
         Sec. 56.032.  ADJUSTMENTS: SMALL AND RURAL INCUMBENT LOCAL
  EXCHANGE COMPANY UNIVERSAL SERVICE PLAN. (a)  In this section:
               (1)  "Rate of return" means the Federal Communications
  Commission's prescribed rate of return as of the date of any
  determination, review, or adjustment under this section, to be no
  greater than 9.75 percent prior to July 1, 2021. If the commission
  finds that the Federal Communications Commission no longer
  prescribes a rate of return necessary to implement this section,
  the commission shall initiate proceedings to determine or modify
  the rate of return to be used for purposes of this section as
  necessary.
               (2)  "Small provider" means:
                     (A)  an incumbent local exchange company or
  cooperative that, on September 1, 2013, together with all local
  exchange companies affiliated with the company or cooperative on
  that date, served 31,000 or fewer access lines in this state; or
                     (B)  a company or cooperative that is a successor
  to a company or cooperative described by Paragraph (A).
         (b)  Except as provided by Subsections (c) through (j) [(d)
  and (e)], the commission may revise the monthly support amounts to
  be made available from the Small and Rural Incumbent Local Exchange
  Company Universal Service Plan by any mechanism, including support
  reductions resulting from rate rebalancing approved by the
  commission, after notice and an opportunity for hearing.  In
  determining appropriate monthly support amounts, the commission
  shall consider the adequacy of basic rates to support universal
  service.
         (c)  On the written request of a small provider that is not an
  electing company under Chapter 58 or 59, the commission shall
  determine and disburse support to the small provider in fixed
  monthly amounts based on an annualized support amount the
  commission determines to be sufficient, when combined with
  regulated revenues, to permit the small provider the opportunity to
  earn a reasonable return in accordance with Section 53.051. A small
  provider that makes a request under this subsection shall continue
  to receive the same level of support it was receiving on the date of
  the written request until the commission makes a determination or
  adjustment through the mechanism described by Subsection (d).
         (d)  Not later than January 1, 2018, the commission shall
  initiate rulemaking proceedings to develop and implement a
  mechanism to determine the annualized support amount to be
  disbursed under Subsection (c). The mechanism must:
               (1)  require the annual filing of a report by each small
  provider that submits a request under Subsection (c) for the
  purpose of:
                     (A)  establishing a continued level of support for
  the provider or the eligibility of the provider for support
  adjustment filings for the purposes of Subsections (f), (g), (h),
  and (i); and
                     (B)  determining whether support levels, when
  combined with regulated revenues, provide the provider an
  opportunity to earn a reasonable return as described by Subsection
  (f);
               (2)  provide requirements for the annual filing, which
  may include annual earnings reports filed with the commission under
  16 T.A.C. Section 26.73 and any underlying data that, during the
  rulemaking process, the commission determines to be reasonably
  necessary for the purposes of Subdivision (1);
               (3)  provide requirements and procedures for
  adjustment proceedings that are consistent with Subsections (h) and
  (i); and
               (4)  provide a procedure for the commission to assess,
  as necessary, whether the reported return of a small provider is
  based on expenses that are not reasonable and necessary.
         (e)  In a proceeding to adjust support levels using the
  mechanism described by Subsection (d), the commission may consider
  the small provider's data for a period not to exceed three fiscal
  years before the date the proceeding is initiated.
         (f)  For purposes of the mechanism described by Subsection
  (d), a return is deemed reasonable if the return is within two
  percentage points above or three percentage points below the rate
  of return as defined in this section. A small provider's reported
  return is subject to assessment under the procedures described in
  Subsection (d)(4).
         (g)  The commission may not approve a support adjustment
  under Subsection (h) or (i) if the commission determines that a
  small provider's return for the previous fiscal year was reasonable
  under Subsection (f).
         (h)  A small provider whose return is not reasonable under
  Subsection (f) because the return is more than three percentage
  points below the rate of return as defined in this section may file
  an application that is eligible for administrative review or
  informal disposition to adjust support or rates to a level that
  would bring the small provider's return into the range that would be
  deemed reasonable under Subsection (f), except that the adjustment
  may not set a small provider's support level at more than 140
  percent of the annualized support amount the provider received in
  the 12-month period before the date of adjustment. A rate
  adjustment under this subsection may not adversely affect universal
  service.  Except for good cause, a small provider that files an
  application for adjustment under this subsection may not file a
  subsequent application for adjustment before the third anniversary
  of the date on which the small provider's most recent application
  for adjustment is initiated.
         (i)  There is no presumption that the return is unreasonable
  for a small provider whose return is more than two percentage points
  above the rate of return as defined in this section. However, on
  its own motion, the commission may initiate a proceeding to review
  the small provider's support level and regulated revenues and after
  notice and an opportunity for a hearing, adjust the provider's
  level of support or rates, if appropriate.  A rate adjustment under
  this subsection may not adversely affect universal service.  Except
  for good cause, the commission may not initiate a subsequent
  adjustment proceeding for a small provider under this subsection
  before the third anniversary of the date on which the small
  provider's most recent adjustment proceeding is initiated.
         (j)  A small provider that is eligible to have support
  determined and distributed under Subsection (c) shall continue to
  receive the same level of support it was receiving on August 31,
  2017, until the earlier of:
               (1)  the date on which the commission makes a
  determination or adjustment through the mechanism described by
  Subsection (d); or
               (2)  the 61st day after the date the commission adopts
  the mechanism described by Subsection (d).
         (k)  A report or information the commission requires a small
  provider to provide under Subsection (d) is confidential and is not
  subject to disclosure under Chapter 552, Government Code. In any
  proceeding related to Subsection (d), a third party's access to
  confidential information is subject to an appropriate protective
  order.
         (l)  Except as provided by Subsection (m), this [This]
  section does not:
               (1)  affect the commission's authority under Chapter 53
  or this chapter; or
               (2)  limit the commission's authority to initiate a
  review of a small provider under another provision of this title.
         (m)  In a proceeding for a small provider initiated under
  Subchapter A, B, C, or D, Chapter 53, the commission may recalculate
  the annualized support amount to be disbursed to the small provider
  and to be used as the basis for adjustment in any subsequent
  proceeding under Subsections (c) through (j).
         (n)  Subsections (a), (c), (d), (e), (f), (g), (h), (i), (j),
  (k), (l), and (m) and any monthly amounts approved under those
  subsections expire September 1, 2023.
         [(h)     Subsections (a), (c), (d), (e), and (f) and any monthly
  support amount approved under those subsections expire September 1,
  2017.]
         SECTION 2.  (a)  In this section, "commission" means the
  Public Utility Commission of Texas.
         (b)  On or after January 1, 2022, and before July 1, 2022, the
  commission shall initiate a proceeding to review and evaluate
  whether:
               (1)  Section 56.032, Utilities Code, as amended by this
  Act, including any rules adopted to implement that section,
  accomplishes the purposes of the establishment of the universal
  service fund under Section 56.021(1)(B), Utilities Code, and allows
  each small provider, as defined by Section 56.032, Utilities Code,
  as amended by this Act, the opportunity to earn a reasonable return
  in accordance with Section 53.051, Utilities Code, and should be
  continued; or
               (2)  changes in law to amend or replace the mechanism
  created by Section 56.032, Utilities Code, are necessary to
  accomplish the purposes described in Subdivision (1) of this
  subsection.
         (c)  The commission has all authority necessary to conduct
  the review under Subsection (b) of this section.
         (d)  After the review conducted under Subsection (b) of this
  section, and not later than September 1, 2022, the commission shall
  submit to the legislature a report on:
               (1)  the continued appropriateness of using the Federal
  Communications Commission prescribed rate of return for the
  mechanism established under Section 56.032(d), Utilities Code, as
  added by this Act, if the Federal Communications Commission still
  prescribes a rate of return that may be used for that mechanism;
               (2)  the efficiency and frequency of adjustment
  proceedings conducted under Section 56.032(h), Utilities Code, as
  amended by this Act, and Section 56.032(i), Utilities Code, as
  added by this Act;
               (3)  the frequency and efficiency of determinations
  made on reasonable and necessary expenses under Section
  56.032(d)(4), Utilities Code, as added by this Act;
               (4)  the effect of changes in technology on regulated
  revenue and support needs or determinations made under Section
  56.032, Utilities Code, as amended by this Act; and
               (5)  any other relevant information the commission
  determines is necessary for inclusion in the report and is in the
  public interest.
         (e)  Notwithstanding Subsection (b) of this section or
  Section 56.024, Utilities Code, a party to a commission proceeding
  under this section examining the universal service fund and the
  effectiveness of Section 56.032, Utilities Code, as amended by this
  Act, is entitled to access confidential information provided to the
  commission under Section 56.024(a), Utilities Code, if a protective
  order is issued in the proceeding for the confidential information.
         SECTION 3.  This Act takes effect September 1, 2017.
 
 
 
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
         I hereby certify that S.B. No. 586 passed the Senate on
  April 20, 2017, by the following vote:  Yeas 28, Nays 3.
 
 
  ______________________________
  Secretary of the Senate    
 
         I hereby certify that S.B. No. 586 passed the House on
  May 16, 2017, by the following vote:  Yeas 128, Nays 18, one
  present not voting.
 
 
  ______________________________
  Chief Clerk of the House   
 
 
 
  Approved:
 
  ______________________________ 
              Date
 
 
  ______________________________ 
            Governor