This Fiscal Note is not an official copy and should not be quoted or cited.
Fiscal Note - SB 0507 - Regulation of Telecommunications Companies
L.R. NO.  2263-16
BILL NO.  Truly Agreed To and Finally Passed SS for SCS for SB 507
SUBJECT:  Telephone and Telegraph
TYPE:     Original
DATE:     May 1, 1996

                              FISCAL SUMMARY


FUND AFFECTED               FY 1997         FY 1998         FY 1999

General Revenue           ($51,664)       ($48,885)       ($50,114)

Public Service
Commission **            ($194,230)      ($216,371)      ($221,990)

Total Estimated
Net Effect on All
State Funds **           ($245,894)      ($265,256)      ($272,104)

** The net effect on the Public Service Commission Fund could be $0 if the
PSC increases the assessment and appropriation is made.


FUND AFFECTED               FY 1997         FY 1998         FY 1999


Total Estimated
Net Effect on All
Federal Funds                    $0              $0              $0


FUND AFFECTED               FY 1997         FY 1998         FY 1999

Local Government            Unknown         Unknown         Unknown

                              FISCAL ANALYSIS


Officials from the Department of Economic Development-Public Service
Commission (PSC) assume the PSC would request two (2) full time and four (4)
one-half time FTE and related expense and equipment funds to perform the
additional workload that would be generated due to increased
telecommunications tariff filing and monitoring the Universal Service Fund
established by this proposal.  Currently, the PSC telecommunications staff
processes approximately 550 tariff filings each year.  PSC officials assumed
the proposed legislation would result in a 35% increase (230) in the number
of telecommunications tariff filings in each of the first two to three years.

PSC officials would request:   one-half  (.5) Hearing Officer ($28,200) to
preside over Commission hearings, draft proposed orders and report and orders
for Commission approval; one (1) Utility Regulatory Engineer II ($37,656) to
review tariff and application filings, provide information on
telecommunications technical issues regarding telecommunications
infrastructure, prepare and file exhibits and written testimony and testify
as an expert witness in cases before the Commission; one-half (.5) Legal
Counsel ($30,605) to review applications filed, represent staff in hearings
before the Commission, attend public hearings and represent the Commission in
court cases; .5 Utility Regulatory Auditor III ($29,352 per year) to perform
oversight monitoring of the Universal Service Fund, perform audits,
investigations and statistical analysis of telecommunication utility matters,
prepare and file exhibits and written testimony and testify as an expert
witness; one (1) Regulatory Economist III ($37,656) to evaluate the extent of
competition in telecommunication markets, investigate and review various
analysis relating to cost studies and statistical survey samples and prepare
testimony and testify as an expert witness;  and .5 Clerk II ($15,072) to
receive records and process tariff filings, applications and related matters
and establish and maintain case files.

Depending on the initial workload generated by this proposed change in
legislation in the first two or three years, and the possible tapering off of
the workload in the subsequent three to four years, the PSC staff may need to
be reevaluated to determine if the additional FTE are needed.

Officials of the Office of Public Counsel (OPC) would request an additional
economist to develop and to perform the new long term incremental cost
studies mandated by this proposal to protect consumers from monopoly pricing
with regard to basic service and to promote competition by eliminating the
possibility of predatory pricing.  Sections 386.020(33), 392.200(2)(c), and
392.245(9) would require the OPC to perform Long Run Incremental Cost (LRIC)
studies in order to promote the transition to competition and protect the
general public.  Currently, these studies are not being performed by OPC.
The potential number of LRIC studies exceed 40,000 (200 services for 200
exchanges) for Southwestern Bell Telephone alone.  GTE and Sprint United
Telephone combined would have similar exposure.  OPC officials do not
anticipate that total state wide deaveraging of services by exchange would
occur; however, even with 5% occurrence rate, OPC staff estimated that
approximately 4,000 possible LRIC studies would be required per year.  Local
service revenues constitute approximately 50% of the total revenues of a
telephone company.  Therefore, a reasonable estimate of studies to be
reviewed is 2,000.  An economist can review approximately 5 studies per week
and perform, from scratch, one study per month.  This results in a total of
272 studies analyzed per year.  Public Counsel would continue to use its
professional judgment in choosing which studies to analyze in order to
minimize expenditures of tax dollars to protect the public while maximizing
the impact on Missouri ratepayers.  OPC estimated that it would take
approximately 75% of the economist FTE's time to perform these duties.  The
economist would spend the remaining 25% of time providing technical support
for the new universal service board created by section 392.248.

The OPC would also require a $70,000 increase in its consulting budget in
order to analyze unbundling, the removal of physical barriers to competition,
and other aspects of Missouri's regulatory transition to a more competitive
telecommunications market, including the responsibilities created by sections
251 through 259 of the Federal Telecommunications Act of 1996 which would be
implemented through this proposal.  The unpredictable timing of these crucial
issues require the flexibility that consulting funds would provide to acquire
the specialized technical expertise necessary for OPC to fulfill its mission
under the bill. The increase in the consulting budget was based on an
engineer spending 700 hours per year at a billing rate of $100 per hour.
Review of telecommunications system design, technical specifications and
capabilities and other related matters was a highly specialized field.
Public Counsel could not afford to train a full time employee because their
possible leaving would eliminate OPC's ability to participate in the
appropriate dockets required by the Federal Telecommunications Act of 1996
and implementation provisions under Senate Bill 507.  These dockets were also
not anticipated to be on a regular cycle, therefore the use of a consultant
was estimated to save money over the long run.

Oversight assumes that PSC and OPC would locate new FTE in existing
facilities and therefore, has not included any additional rental costs as a
result of this proposal.  Oversight also assumed that it is difficult to
predict the amount of consulting that would result directly from this
proposal; therefore, it was assumed that OPC could pursue additional
consulting costs through the normal budgetary process as the need arises.

Officials from the Department of Revenue,  Office of Administration and
Office of the State Treasurer assume this proposal would have no fiscal
impact to their agencies.

Officials from the Department of Elementary and Secondary Education assumed
in response to a similar proposal that there would be no fiscal impact on the

Oversight assumes that there could be unknown potential savings to school
districts in the form of reduced rates as a result of section 170.250 in this

FISCAL IMPACT - State Government       FY 1997     FY 1998     FY 1999
                                      (10 Mo.)

Cost-Office of Public Counsel (OPC)
  Personal Service (1 FTE)           ($29,422)   ($36,335)   ($37,243)
  Fringe Benefits                      (9,039)    (11,162)    (11,441)
  Expense and Equipment               (13,203)     (1,388)     (1,430)
Total Cost - OPC                     ($51,664)   ($48,885)   ($50,114)

GENERAL REVENUE FUND                 ($51,664)   ($48,885)   ($50,114)


Cost-Public Service Commission  (PSC)
   Personal Service (4 FTE)         ($108,373)  ($133,352)  ($136,686)
   Fringe Benefits                    (33,292)    (40,966)    (41,990)
   Expense and Equipment              (52,565)    (42,053)    (43,314)

Total Cost - PSC                    ($194,230)  ($216,371)  ($221,990)

PUBLIC SERVICE COMMISSION FUND      ($194,230)  ($216,371)  ($221,990)

** The net effect on the Public Service Commission Fund could be $0 if the
PSC increases the assessment and appropriation is made.

FISCAL IMPACT  - Local Government      FY 1997     FY 1998     FY 1999
                                      (10 Mo.)
Potential Savings-School Districts
  reduced telecommunications rates     Unknown     Unknown     Unknown


This proposal would make changes in the Public Service Commission's
regulation of telecommunication companies.   It would define electronic
publisher, electronic publishing services, and large (more than 100,000
access lines), and small (less than 100,000 access lines) local exchange
telecommunications companies.  The PSC would define "basic local service" and
review the meaning of the term on a periodic basis in light of changing
technology.  Until February 7, 2000, telecommunications companies would be
required to have separate subsidiaries for electronic publishing services.
The proposal would authorize price regulation of telecommunications

This proposal would establish a "Universal Service Fund" to be administered
by a neutral party without financial interest in telecommunications
companies.  All telecommunications providers would contribute to the Fund.
The Fund would be used to ensure affordable and reasonable rates in high cost
areas and to assist low-income customers and disabled customers in obtaining
basic services.  The PSC would determine costs of providing service on a
geographic basis and establish an eligibility standard for receiving
assistance from the fund.

The proposal would add the following items to the "intent" of Missouri
telecommunication law:  to promote parity of urban and rural services, to
promote economic, educational, health care and cultural enhancements and to
protect consumer privacy.

The proposal would require local exchange telecommunications companies to
file with the Public Service Commission (PSC) tariffs for provision of
service to public school districts (current filing is permissive).  The PSC
would be directed to approve, or if necessary, modify the tariffs to ensure
that all public school districts have access to substantially reduced rates.

This legislation is not federally mandated, would not duplicate any other
program and would not require additional capital improvements or rental


Department of Economic Development-Public Service Commission
Department of Economic Development-Public Counsel
Department of Revenue
Office of Administration
Department of Elementary and Secondary Education
Office of the State Treasurer