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

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

NEW SECTION. Sec. 1. POLICY DECLARATION. (1) 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 competitive 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. The legislature finds that the traditional cost plus regulatory approach in today's high technology environment fails to adequately encourage efficiency and innovation and could result in rates for basic service in the increasingly competitive telecommunications industry that would seriously harm affordable universal telecommunications service and result in unreasonable charges.

(2) The legislature finds that with the advent of competition since the divestiture of the Bell System in intrastate toll services, high-capacity private line and high-capacity special access services, central office based services, and yellow-page publishing, the subsidies and large contributions to common costs previously available from these services to provide support for basic local exchange service is no longer certain. As a result, basic exchange rates under traditional regulation must increase in the future, perhaps substantially. In recognition of these facts, it is now appropriate to establish a carefully controlled maximum price regulation mechanism that will better protect basic exchange service ratepayers from the unfavorable consequences of competition and other changes in the telecommunications industry and at the same time encourage telecommunications companies to be efficient and innovative in their provision of service in the state of Washington.

NEW SECTION. Sec. 2. DEFINITIONS. As used in sections 1 through 6 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) "High-capacity private line and high-capacity special access services" means a service provided by a telecommunications company which allows a subscriber, upon payment of a flat or measured charge, the exclusive or priority use of a telecommunications line or channel for voice or nonvoice purposes at speeds of 1.544 mb/s or above.

(3) "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.

(4) "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.

(5) "Basic local exchange service" means 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.

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 within sixty days of filing to remove all of its services from rate of return on rate base regulation and to provide service at guaranteed rates to subscribers for a fixed term of not less than five years: PROVIDED, That there shall be no price or rate of return on rate base regulation with respect to intrastate toll service, high-capacity private line and high-capacity special access 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) A telecommunications company electing within thirty days after the effective date of this section 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 this section at the rates contained in tariffs on file with the commission and approved by it as of June 1, 1988, or for new services introduced after that date at the rates contained in the tariffs that introduce the new service, subject only to increases or decreases thereafter for the five-year period due to:

(a) Changes in the consumer price index;

(b) Changes in the telecommunications company's management and nonmanagement labor costs, not to exceed in percentage change the percentage change in cost contained in the company's collectively bargained agreements with its nonmanagement labor force; and

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

(3) Once each year on November 1, beginning November 1, 1988, the electing telecommunications company shall file for rate changes with the commission. The commission, after appropriate verification, shall grant rate decreases or increases in all the services that are price regulated, based on changes, if any, in the three factors under subsection (2) 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 shall be calculated;

(b) The decreased or increased intrastate costs due to changes in the cost categories in subsection (2) (b) and (c) 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.

A telecommunications company may at its option elect not to increase a rate pursuant to this section if the change produced would be inadvisable from a market or administrative standpoint, but may instead elect to accrue such increases for that service until such time as the total cumulative rate increase allowed in this section is practicable. In no event may the increase in basic local exchange service rates exceed three percent per rate in any year.

(4) Services provided pursuant to price regulation shall not be subject to rate of return on rate base regulation.

(5) The 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.

(6) 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; RCW 80.36.100, 80.36.110, and 80.36.130 relating to tariffs; and RCW 80.36.170, 80.36.180, and 80.36.190 relating to preferences and discrimination.

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

(8) For intrastate toll services 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) If 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 same discounted rate per minute available to a customer electing a five-hour per month minimum usage plan shall be available to a customer electing a one-hour per month minimum usage plan.

(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.

(9) 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.

NEW SECTION. Sec. 4. SERVICE QUALITY. The commission shall adopt rules to establish minimum standards of service for all price regulated services offered by a 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.

NEW SECTION. Sec. 5. PRESERVATION OF SMALL COMPANIES. Local exchange telecommunications companies that serve less 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.

NEW SECTION. Sec. 6. 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. A telecommunications company shall have the option of extending regulation of its services in the manner provided by section 3 of this act, 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. 7. CAPTIONS. As used in this act, captions constitute no part of the law.

NEW SECTION. Sec. 8. LEGISLATIVE DIRECTIVE. Sections 1 through 6 of this act are each added to chapter 80.36 RCW.