JudicialStatewide NewsCourt Orders PUC to Pay Texas Universal Service Fund’s $200 Million Debt and Ensure Solvency

Two years after the PUC chose to not increase rates, an appeals court has ordered the agency to pay off the Universal Service Fund obligations.
July 1, 2022
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The Public Utility Commission (PUC) was ordered on Thursday to pay off the $200 million in obligations it owes to rural telecommunications providers and to meet its promises going forward.

Last week, the Texas Telephone Association (TTA) announced the state was short $200 million in its Universal Service Fund (USF) and projected that shortfall to grow to $300 million by January. The USF is a subsidy provided to rural telecommunications companies to enable phone service in sparsely populated areas — in conjunction with a state mandate that all Texans have a phone connection, primarily so that 911 calls are accessible.

Earlier this week, the Texas Senate Business and Commerce Committee discussed the ongoing USF situation, at which the PUC executive director said the fund deficit grows by $10 million to $11 million every month.

A 3.3 percent fee on all intrastate calls funds the USF, which is then divvied out to providers. The shortfall stems from a June 2020 decision by the PUC to neither increase that fee nor expand the types of calls taxed to keep the fund solvent. The PUC commissioners made that decision at the time to avoid increasing taxes during the economic turmoil brought on by the COVID-19 pandemic.

The PUC opted instead for creating a distribution prioritization system for which it entered into a contract with data management firm Solix.

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Following that, Gov. Greg Abbott vetoed a bill in 2021 that ordered the PUC to expand its intake.

Due to the shortfall, rural telecom providers alerted their customers to substantial rate increases; one, Dial Tone Services, even told its customers that its service would no longer be provided after mid-August.

The TTA filed suit against the state in January 2021, litigation now reaching a point of resolution.

But barring an intervention by the Texas Supreme Court, going forward the PUC will be ordered to meet its obligations.

During the proceedings, the PUC claimed sovereign immunity — a doctrine that prohibits litigation in Texas trial courts against state entities unless consent for the suit is granted. The argument for sovereign immunity, the court explained, is to prevent taxpayer money in the treasury from being raided by litigation after litigation and to protect the separation of powers.

The court dismissed this claim and allowed the merits of the case to continue. In a somewhat similar instance, the Fifth District Court of Appeals dismissed the Electric Reliability Council of Texas’ claims of sovereign immunity in a years-old case that holds new implications after the power grid’s collapse in 2021 — another facet of the PUC’s purview.

“When the statute is read as a whole, the Legislature’s intent, as further embodied in the Commission’s rules, is clear: while the [PUC] has discretion to decide how to fund USF, it lacks the discretion to underfund USF and to fail to make payments owed,” the court ruled.

In short, the PUC has broad discretion in choosing methods to fund the USF, but no discretion in whether or not to fund it sufficiently.

About the 2020 decision, the court said, “Refusing to approve the assessment rate at the amount required to cover the cost of TUSF programs was not an option within the [PUC’s] discretion. The statutory scheme requires the Commissioners to fund USF at the level needed to cover the costs of USF programs.”

The court also ruled that the PUC’s actions constituted a “regulatory taking” — a legal provision in which government action deprives a property owner of “all economically reasonable use or value of their property.”

This finding entitles the telecom providers to compensation, a sum the appeals court sent down to the lower court to determine.

The appeals court issued its ruling and sent the case back down to the trial court to officially order the PUC to refill the USF.

How the fund is made solvent is left up to the PUC. In a letter to state leaders last month, the TTA stated that a 15 percent fee is required to pay off the $200 million shortfall. Another option available to the PUC is to tax Voice over Internet Protocol calls, which may be subject to the fee but is not currently taxed.

“We regret that we were forced by the former Commissioners of the PUC into filing this lawsuit, but we look forward to working with the new commissioners to quickly follow the court’s directions, recoup the money owed these companies, and move on with the business of providing reliable and affordable telecommunications to all of Rural Texas,” said Rusty Moore, general manager and chief operating officer of Big Bend Telephone and president of the TTA Board of Directors.

“Because it remains very costly to provide these services in rural areas, the decades-old support mechanism of Universal Service had to survive.”

The PUC declined to comment but said it is reviewing the court’s ruling.

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Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.