1. NARUC Spring Meeting Staff Subcommittee on Accounting and Finance New Orleans, Louisiana March 31-April 3, 2008 “The New Paradigm” And Why Do I Care? Lori Panzino-Tillery San Bernardino County, CA April 1, 2008

2. Why Do I Care? Active Attempts at State Legislation –Is Your State Next? New Responsibilities –This could be my job? Who Gets the Money? Who Gets the Calls?

3. Telecom 101 Why Are We Here? Federal Cable Regulations Phone Companies Diversification Need for State or Federal Intervention Telecos v. Cable Companies Where Do Consumers Fit?

4. OVERVIEW of CA Legislation Creates parallel franchising scheme at state level Local franchising not preempted as to any entity which holds a franchise as of January 1, 2008 Empowers Public Utilities Commission as franchising authority (federally defined as well)

5. GOALS Promote video and broadband competition Level playing field Protect local government revenues and control of PROW Compliance with “applicable” customer service laws “Continue” access to and “maintenance” of PEG channels

6. WHAT IT ISN’T No impairment of environmental laws – City/County lead agency No impairment of local ability to mitigate environmental impacts upon PROW (see photo-next slide!) Not a “public utility” – no PUC authority over “rates, terms and conditions” of video service

7. 52B DSLM Cabinet

8. KEY DEFINITIONS “Cable Service:” defers to federal definition “Franchise:” Any authorization for any network in PROW capable of providing Video Service “Incumbent Cable Operator:” Cable Operator serving subscribers under local franchise on January 1, 2007

9. KEY DEFINITIONS (cont.) “Video Programming:” Generally comparable to broadcast programming “Video Service:” Video programming + cable service + OVS using facilities “at least in part” in PROW irrespective of technology and delivery protocol

10. STATE FRANCHISING SCHEME PUC sole franchising authority for State franchise State franchise exclusive for entities not franchised as of January 1, 2008 May or may not be preemptive thereafter

11. APPLICATION PROCESS PUC must accept applications by April 1, 2007 Cost-based fee ($1 mil budget for PUC) Basic and minimal provision of information Description of “video service area and footprint” “Adequate Assurance” of financial, legal and technical qualifications May require bond – LOC?

12. STATE FRANCHISE TIME LINES Commence by April 1, 2007 PUC to notify applicant as to completeness within 30 days PUC to issue (ministerial) State franchise within 14 calendar days of complete application

13. TRANSFERS OF STATE FRANCHISE Ministerial transfer – no legislative discretion Notification of local entities Holder of State franchise may terminate at its discretion

14. TERM OF STATE FRANCHISE 10 years Renewal ministerial Renewal “consistent with federal law” – what does that mean? No grant or renewal if violation of specified customer protection standards and “this division.”

15. FRANCHISE FEE “State Franchise Fee” Characterized as “rent” Paid directly to local entity quarterly Amount tied to “Incumbent Cable Operator” up to 5% No additional fees and charges other than utility user taxes and “generally applicable” taxes, fees and charges applied in nondiscriminatory and competitively neutral manner

16. FRANCHISE FEE (cont.) Definition of “Gross Revenues” –Generally accepted accounting principles –Includes franchise fees –Ancillary revenues –Excludes “reimbursements … of identifiable marketing costs” Pro rata allocation of “bundled discounts”

17. FRANCHISE FEE (cont.) Annual audits – paid by Video Service Provided if more than 5% under payment No requirement of financial reporting outside of audit 3 year 45 days statute of limitation

18. CABLE OPERATOR ABROGATION Cable operator may “abrogate” existing franchise and obtain State upon earliest of: –Franchise expiration –Mutually agreed date –“Notification” of intent of State franchisee to provide service in all or part of jurisdiction State franchise not available until January 2, 2008 PEG, I-Net, In-Kind services, emergency alert grandfathered until expiration of franchise

19. LOW-INCOME BUILD-OUT REQUIREMENTS No discrimination based upon income Low income construction milestones –3 years: 25% with access must be “low income” –5 years: 30% with access must be “low income” PUC to enforce- Money for Data Collection

20. TOTAL BUILD-OUT REQUIREMENTS Dominant construction technique is FTTP - 25% in 2 years and 40% in 5 years Dominant construction technique is not FTTP - 35% in 3 years + 50% in 5 years 5 year requirements “tolled” until 30% penetration for 6 consecutive months May request extensions after 2 years

21. CUSTOMER SERVICE REQUIREMENTS Shall comply with video service standards “established by federal law” Who Ya’ Gonna Call? Local entities shall “enforce” but may not adopt or enforce any “additional or different” customer service or performance standards

22. CUSTOMER SERVICE REQUIREMENTS (cont.) Local entities shall “enforce” but may not adopt or enforce any “additional or different” customer service or performance standards Penalties may be enforced Progressive penalties starting at $500 per day ½ of penalties to Digital Divide Account

23. What Was Lost? Emergency Alert Systems (Coming?) Reporting Required Build-out Ratepayer Bill Confusion Customer Service –Who handles the complaint process on the Company Side? I-Nets, Service Connections for Libraries and Government Buildings

24. What Should You Do? How Do PUC’s Provide Input to Process Protect Ratepayers from Cross Subsidies Open Communication with Municipal Leagues/County Organizations EARLY!

25. Thank You!! And Good Luck! If you have any questions or would like an electronic copy of this presentation- please feel free to contact me at lpanzino@cao.sbcounty.gov or lpanzino@cao.sbcounty.gov 909-387-9600