AN ACT Relating to telecommunications; adding new sections to chapter 80.36 RCW; and creating new sections.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. POLICY DECLARATION. The legislature declares it is the policy of the state, in order to further and protect the policies and goals set forth in RCW 80.36.300, that telecommunications companies providing basic local exchange services as well as other telecommunications services may elect to be regulated on a maximum price basis for noncompetitive services and on a minimal regulation basis for other designated services as provided for in section 3 of this act, rather than on the traditional rate base and rate of return basis otherwise provided by this chapter.

NEW SECTION. Sec. 2. DEFINITIONS. As used in sections 1 through 3 and 5 through 9 of this act, the following terms have the meanings indicated unless the context clearly requires otherwise.

(1) "Intrastate toll service" means a service provided by a telecommunications company which allows a subscriber to make long distance telephone calls between local exchange areas in the state of Washington at a charge that varies with the time and distance of the call and includes but is not limited to the services known as "message toll service," "wide area telephone service," and "800 service."

(2) "Central office based services" means services like those provided on the effective date of this section under the names "centrex," "centron," or "corecom," exclusive of network access, that provide private branch exchange services to subscribers utilizing a central office switch.

(3) "Consumer price index" means the United States average consumer price index for all urban consumers published by the bureau of labor statistics of the United States department of labor for August of each year.

(4) "Basic local exchange service" means any service provided by an electing telecommunications company and determined by the commission to be necessary to obtain the transmission of two-way interactive switched communications over a telephone line or channel within a local exchange area as defined by the commission for business and residence customers.

(5) "Electing telecommunications company" means a telecommunications company providing basic local exchange service and other telecommunications services that has filed an election pursuant to section 3 of this act.

NEW SECTION. Sec. 3. PRICE REGULATED SERVICES--COMPETITIVE NONPRICE REGULATED SERVICES. (1) A telecommunications company providing basic local exchange and other telecommunications services may file an election with the commission to be effective not less than sixty days after filing to remove during the period its election is in effect all of its services from rate of return on rate base regulation and to provide noncompetitive services at guaranteed rates to subscribers for a fixed term of not less than five years. There shall be no price or rate of return on rate base regulation of an electing telecommunications company during the period its election is in effect with respect to intrastate toll service, central office based services, and all services classified as competitive pursuant to RCW 80.36.330, which are all declared to be competitive, nonprice regulated services subject to minimal regulation only.

(2) An electing telecommunications company shall, at the time it files an election pursuant to this section, file with the commission tariffs for all services except those services declared to be competitive by subsection (1) of this section. The commission shall within seven months of the filing determine whether rates in such tariffs are fair, just, reasonable, and sufficient, pursuant to chapter 80.04 RCW and RCW 80.36.080 and 80.36.140. Within sixty days of the determination in this subsection by the commission, an electing telecommunications company may revoke its election.

(3) A telecommunications company electing to be regulated under this section shall provide all existing services, other than those competitive, nonprice regulated services enumerated in subsection (1) of this section, for a period of five years following the effective date of the rates approved by the commission pursuant to subsection (2) of this section at the rates contained in tariffs on file with and approved by the commission. An electing telecommunications company shall provide any service introduced after that date at the rates contained in the tariffs that introduce the new service and approved by the commission pursuant to the fair, just, reasonable, and sufficient standard contained in RCW 80.36.080. Such rates shall be subject only to increases or decreases thereafter for the five-year period due to:

(a) Changes in the consumer price index; and

(b) Changes in federal, state, or local tax obligations and accounting and separations changes mandated by federal or state regulatory agencies.

(4) Once each year by November 1, beginning the November 1 after the effective date of the rates approved by the commission pursuant to subsection (2) of this section, the electing telecommunications company shall file for rate changes with the commission. The commission shall, after hearing and investigation, determine whether the rate changes filed by the company are consistent with this section and shall grant rate decreases or increases in all the services that are price regulated, based on changes, if any, in the factors under subsection (3) of this section, to be effective January 1 of the following year. The rate changes, if any, shall be computed as follows:

(a) The revenues received from all of the company's separated state of Washington operations in the most recent twelve months for which results are available shall be calculated;

(b) Any known and measurable decreased or increased intrastate costs in the next year due to changes in the cost categories in subsection (3)(b) of this section shall be calculated for all services used in the revenue calculation in (a) of this subsection;

(c) A preliminary adjustment factor shall be calculated as the percentage that (b) of this subsection bears to (a) of this subsection;

(d) The final adjustment factor shall be calculated by adding the preliminary factor calculated in (c) of this subsection to seventy-five percent of the percentage decrease or increase in the consumer price index for the twelve-month period ending in August; and

(e) Price regulated services shall be decreased or increased by a percentage equal to the final adjustment factor.

An electing telecommunications company may at its option elect not to increase a rate pursuant to the final adjustment factor if the change produced would be inadvisable from a market or administrative standpoint, but may instead elect to increase the rate for that service at such time as the total cumulative rate increase allowed in this section is practicable. An electing telecommunications company shall not be required to decrease rates for public telephone service until the total cumulative decrease required under this section is at least five cents.

(5) In no event may the increase in any basic local exchange service rate exceed three percent in any year.

(6) Services provided by an electing telecommunications company and subject to price regulation under this section shall not be subject to rate of return on rate base regulation during the period that the company's election is in effect.

(7) An electing telecommunications company shall file, instead of tariffs, price lists with respect to telecommunications services not price regulated under this section which shall be effective after ten days' notice to the commission and customers. The commission shall prescribe the form of notice of price list changes to customers.

(8) With respect to telecommunications services not price regulated, an electing telecommunications company shall be exempt from the regulatory requirements under RCW 80.04.300, 80.04.310, 80.04.320, and 80.04.330 relating to budgets; RCW 80.04.360 relating to excess earnings to a reserve fund; RCW 80.04.460 relating to accidents; RCW 80.04.520 relating to lease of utility facilities; chapter 80.08 RCW relating to securities; and RCW 80.36.100, 80.36.110, and 80.36.130 relating to tariffs.

(9) With respect to services not price regulated, the telecommunications company shall be subject to the consumer protection act, chapter 19.86 RCW.

(10) For intrastate toll services provided by an electing telecommunications company the following conditions shall remain in effect until March 1, 1990, and thereafter until the electing telecommunications company appears before the commission, in a proceeding with notice to interested parties, and proves to the commission by a preponderance of the evidence that the conditions are no longer necessary to protect the public interest:

(a) To the extent an electing telecommunications company at the time of its election provides intrastate, intraLATA toll service at geographically uniform rates, it shall continue charging geographically uniform rates for such service.

(b) If an electing telecommunications company at the time of its election serves as a carrier of last resort for intrastate, intraLATA toll service, it shall continue to serve as the carrier of last resort for intrastate, intraLATA toll service in all of its assigned service areas of the state, and in the assigned service areas of all other exchange telecommunications companies, unless the commission, after hearing, grants permission for another carrier to undertake the carrier of last resort role in any one or more service areas, whereupon the electing telecommunications company shall be relieved from serving as the carrier of last resort in those service areas only.

(c) Volume discount plans may be offered, but the telecommunications company shall not change prices charged to customers using one hour of long distance service per month relative to the prices charged to customers using five hours of long distance service per month.

(d) The telecommunications company is restricted from placing prohibitions or surcharges for resale or shared use.

(e) The rates for intrastate, intraLATA toll service in the rate bands that include calls zero to thirty miles in length shall not be changed without commission approval, pursuant to the fair, just, reasonable, and sufficient standard contained in RCW 80.36.080.

(11) For all telecommunications services other than price regulated services, an electing telecommunications company shall at a minimum:

(a) Keep its accounts according to regulations as determined by the commission.

(b) File financial reports with the commission as required by the commission and in a form and at times prescribed by the commission.

(d) Cooperate with commission investigations of customer complaints.

(12) The commission may reclassify any telecommunications service declared by this section to be a competitive, nonprice regulated service if it finds, after notice and hearing, that the service is not subject to effective competition, as defined in RCW 80.36.330. A service reclassified by the commission shall be subject to price regulation under this section.

(13) With respect to telecommunications services not price regulated, an electing telecommunications company is restricted from placing prohibitions or surcharges for resale or shared use.

(14) The commission shall in an appropriate proceeding determine the costs, including a fair and reasonable amount for access charges to the local network, that must be covered by an electing telecommunications company's prices for competitive services.

NEW SECTION. Sec. 4. PRICE INDEX AND FORMULA. The commission shall conduct a review of the price cap and formula provisions of section 3 of this act. The commission shall evaluate the effect of the price cap and formula provisions on the incentives of electing telecommunications companies to provide innovative, high-quality, and efficient service. The commission also shall evaluate the effect of these provisions on rates for price-regulated services and on the financial condition of electing telecommunications companies. The commission shall report to the legislature on the results of its review and any recommendations for changes in the price cap and formula provisions by January 15, 1990.

NEW SECTION. Sec. 5. SERVICE QUALITY. The commission shall adopt rules to establish minimum standards of service for all price regulated services offered by an electing telecommunications company. If, after commission complaint, investigation, and hearing, a telecommunications company is found not to meet the adopted service quality standards for any price regulated service, any price increases allowed to that service by section 3 of this act shall be denied until the telecommunications company has improved service quality to meet or exceed the standard. The commission also may impose penalties on the company pursuant to RCW 80.04.380 and order service improvements pursuant to RCW 80.36.260.

NEW SECTION. Sec. 6. PRESERVATION OF SMALL COMPANIES. (1) Local exchange telecommunications companies that serve fewer than one million access lines in the state of Washington shall have the exclusive right to provide basic local exchange service in the geographic territory encompassed by the service maps on file by each such company with the commission, unless the commission finds after complaint, investigation, and hearing that the public interest requires an alternate provider or providers of the service. Each such company shall also have the first option to provide for the intraLATA toll carrier of last resort all facilities within each such company's service area, but the intraLATA toll carrier of last resort is entitled to build its own facilities that just transit, without providing any toll service within, another exchange carrier's service area. The commission shall, after complaint, investigation, and hearing, issue its order to resolve any boundary or facility disputes between telecommunications companies that may arise pursuant to this section.

(2) The commission may exempt an electing company with fewer than one million access lines from the provisions of section 3(5) of this act if the commission finds that mandated changes beyond the control of the electing company, when added to other increases, require price increases to exceed the limitations of section 3(5) of this act.

NEW SECTION. Sec. 7. FURTHER ALTERNATIVES TO RATE OF RETURN REGULATION. The commission shall develop streamlined processes and alternatives to traditional rate of return on rate base regulation that may provide a sharing of cost savings resulting from increased efficiency and may reward regulated companies for innovation, operating efficiencies, and service quality. The commission shall develop and implement an alternative regulation approach by July 1, 1988. Any telecommunications company that does not make an election under section 3 of this act may elect to become subject to the alternative regulation approach developed pursuant to this section.

NEW SECTION. Sec. 8. LEGISLATIVE REVIEW OF PRICE REGULATION. The commission shall provide an annual report to the legislature on the rate changes, if any, for all telecommunications services, made by the electing telecommunications carrier for the past year. At the end of the five-year rate stability period provided in section 3 of this act, the commission and the electing telecommunications company shall each report to the legislature the rate levels for all telecommunications services and the changes, if any, in those rates during the five-year period, together with its analysis of the causes of the changes experienced, and recommendations for the future and the reasons therefor. An electing telecommunications company shall have the option of extending its election unless directed otherwise by an act of the legislature after considering the five-year reports of the commission and the telecommunications company.

NEW SECTION. Sec. 9. COMMISSION RULES. The commission may adopt rules to implement sections 1 through 3 and 5 through 8 of this act.

NEW SECTION. Sec. 10. DISCRIMINATION AND PREFERENCES‑-COMPETITIVE SERVICES. With respect to services declared to be or classified as competitive under this chapter, a telecommunications company shall be exempt from the regulatory requirements under RCW 80.36.170, 80.36.180, and 80.36.190 relating to preferences and discrimination.

NEW SECTION. Sec. 11. EXPEDITED APPROVAL OF MANDATED CHANGES. A telecommunications company with fewer than one million access lines may petition the commission for approval of mandated changes, such as subscriber line charges, separations changes, tax changes, and accounting changes, on an expedited basis. The commission shall verify the accuracy of data presented and approve of the petitioned changes within ninety days of the petition.

NEW SECTION. Sec. 12. CONTRACTS. The commission may approve contracts between a telecommunications company and its customers that provide for guaranteed prices for periods of up to five years, if the commission finds that it is in the public interest.

NEW SECTION. Sec. 13. CAPTIONS. As used in sections 1 through 3 and 5 through 12 of this act, captions constitute no part of the law.

NEW SECTION. Sec. 14. LEGISLATIVE DIRECTIVE. Sections 1 through 3 and 5 through 12 of this act are each added to chapter 80.36 RCW.

NEW SECTION. Sec. 15. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.