CHAPTER 173 Substitute for HOUSE BILL No. 2754 An  Act concerning telecommunications; amending K.S.A. 2001 Supp. 66-2005 and 66-
2008 and repealing the existing sections; also repealing K.S.A. 2001 Supp. 66-2012 and
66-2016.
Be it enacted by the Legislature of the State of Kansas:

      Section  1. K.S.A. 2001 Supp. 66-2005 is hereby amended to read as
follows: 66-2005. (a) Each local exchange carrier shall file a network in-
frastructure plan with the commission on or after January 1, 1997, and
prior to January 1, 1998. Each plan, as a part of universal service protec-
tion, shall include schedules, which shall be approved by the commission,
for deployment of universal service capabilities by July 1, 1998, and the
deployment of enhanced universal service capabilities by July 1, 2003, as
defined pursuant to subsections (p) and (q) of K.S.A. 2001 Supp. 66-
1,187, and amendments thereto, respectively. With respect to enhanced
universal service, such schedules shall provide for deployment of ISDN,
or its technological equivalent, or broadband facilities, only upon a firm
customer order for such service, or for deployment of other enhanced
universal services by a local exchange carrier. After receipt of such an
order and upon completion of a deployment plan designed to meet the
firm order or otherwise provide for the deployment of enhanced universal
service, a local exchange carrier shall notify the commission. The com-
mission shall approve the plan unless the commission determines that the
proposed deployment plan is unnecessary, inappropriate, or not cost ef-
fective, or would create an unreasonable or excessive demand on the
KUSF. The commission shall take action within 90 days. If the commis-
sion fails to take action within 90 days, the deployment plan shall be
deemed approved. This approval process shall continue until July 1, 2000.
Each plan shall demonstrate the capability of the local exchange carrier
to comply on an ongoing basis with quality of service standards to be
adopted by the commission no later than January 1, 1997.

      (b) In order to protect universal service, facilitate the transition to
competitive markets and stimulate the construction of an advanced tel-
ecommunications infrastructure, each local exchange carrier shall file a
regulatory reform plan at the same time as it files the network infrastruc-
ture plan required in subsection (a). As part of its regulatory reform plan,
a local exchange carrier may elect traditional rate of return regulation or
price cap regulation. Carriers that elect price cap regulation shall be ex-
empt from rate base, rate of return and earnings regulation. However,
the commission may resume such regulation upon finding, after a hearing,
that a carrier that is subject to price cap regulation has: violated minimum
quality of service standards pursuant to subsection (l) of K.S.A. 2001
Supp. 66-2002, and amendments thereto; been given reasonable notice
and an opportunity to correct the violation; and failed to do so. Regulatory
reform plans also shall include:

      (1) A commitment to provide existing and newly ordered point-to-
point broadband services to: Any hospital as defined in K.S.A. 65-425,
and amendments thereto; any school accredited pursuant to K.S.A. 72-
1101 et seq., and amendments thereto; any public library; or other state
and local government facilities at discounted prices close to, but not be-
low, long-run incremental cost; and

      (2) a commitment to provide basic rate ISDN service, or the tech-
nological equivalent, at prices which are uniform throughout the carrier's
service area. Local exchange carriers shall not be required to allow retail
customers purchasing the foregoing discounted services to resell those
services to other categories of customers. Telecommunications carriers
may purchase basic rate ISDN services, or the technological equivalent,
for resale in accordance with K.S.A. 2001 Supp. 66-2003, and amend-
ments thereto. The commission may reduce prices charged for services
outlined in provisions (1) and (2) of this subsection, if the commitments
of the local exchange carrier set forth in those provisions are not being
kept.

      (c) Subject to the commission's approval, all local exchange carriers
shall reduce intrastate access charges to interstate levels as provided
herein. Rates for intrastate switched access, and the imputed access por-
tion of toll, shall be reduced over a three-year period with the objective
of equalizing interstate and intrastate rates in a revenue neutral, specific
and predictable manner. The commission is authorized to rebalance local
residential and business service rates to offset the intrastate access and
toll charge reductions. Any remaining portion of the reduction in access
and toll charges not recovered through local residential and business serv-
ice rates shall be paid out from the KUSF pursuant to K.S.A. 2001 Supp.
66-2008, and amendments thereto. Rural telephone companies shall re-
duce their intrastate switched access rates to interstate levels on March
1, 1997, and every two years thereafter, as long as amounts equal to such
reductions are recovered from the KUSF Each rural telephone company
shall adjust its intrastate switched access rates on March 1 of each odd-
numbered year to match its interstate switched access rates, subject to the
following:

      (1) Any reduction of a rural telephone company's cost recovery due
to reduction of its interstate access revenue shall be recovered from the
KUSF;

      (2) any portion of rural telephone company reductions in intrastate
switched access rates which would result in an increase in KUSF recovery
in a single year which exceeds .75% of intrastate retail revenues used in
determining sums which may be recovered from Kansas telecommunica-
tions customers pursuant to subsection (a) of K.S.A. 2001 Supp. 66-2008,
and amendments thereto, shall be deferred until March 1 of the next fol-
lowing odd-numbered year; and

      (3) no rural company shall be required at any time to reduce its in-
trastate switched access rates below the level of its interstate switched
access rates.

      (d) Beginning March 1, 1997, each rural telephone company shall
have the authority to increase annually its monthly basic local residential
and business service rates by an amount not to exceed $1 in each 12
month 12-month period until such monthly rates reach an amount equal
to the statewide rural telephone company average rates for such services.
The statewide rural telephone company average rates shall be the arith-
metic mean of the lowest flat rate as of March 1, 1996, for local residential
service and for local business service offered by each rural telephone
company within the state. In the case of a rural telephone company which
increases its local residential service rate or its local business service rate,
or both, to reach the statewide rural telephone company average rate for
such services, the amount paid to the company from the KUSF shall be
reduced by an amount equal to the additional revenue received by such
company through such rate increase. In the case of a rural telephone
company which elects to maintain a local residential service rate or a local
business service rate, or both, below the statewide rural telephone com-
pany average, the amount paid to the company from the KUSF shall be
reduced by an amount equal to the difference between the revenue the
company could receive if it elected to increase such rate to the average
rate and the revenue received by the company.

      (e) For purposes of determining sufficient KUSF support, an afford-
able rate for local exchange service provided by a rural telephone com-
pany subject to traditional rate of return regulation shall be determined
as follows:

      (1) For residential service, an affordable rate shall be the arithmetic
mean of residential local service rates charged in this state in all exchanges
served by rural telephone companies and in all exchanges in rate groups
1 through 3 as of February 20, 2002, of all other local exchange carriers,
weighted by the number of residential access lines to which each such
rate applies, and thereafter rounded to the nearest quarter-dollar, subject
to the following provisions:

      (A) If a rural telephone company's present residential rate, including
any separate charge for tone dialing, is at or above such weighted mean,
such rate shall be deemed affordable prior to March 1, 2007.

      (B) If a rural telephone company's present residential rate, including
any separate charge for tone dialing, is below such average: (i) Such rate
shall be deemed affordable prior to March 1, 2003; (ii) as of March 1,
2003, and prior to March 1, 2004, a rate $2 higher than the company's
present residential monthly rate, but not exceeding such weighted mean,
shall be deemed affordable; (iii) as of March 1, 2004, and prior to March
1, 2005, a rate $4 higher than the company's present residential monthly
rate, but not exceeding such weighted mean, shall be deemed affordable;
and (iv) as of March 1, 2005, and prior to March 1, 2006, a rate $6 higher
than the company's present residential monthly rate, but not exceeding
such weighted mean, shall be deemed affordable.

      (C) As of March 1, 2007, and each two years thereafter, an affordable
residential service rate shall be the weighted arithmetic mean of local
service rates determined as of October 1 of the preceding year in the
manner hereinbefore specified, except that any increase in such mean
exceeding $2 may be satisfied by increases in a rural telephone company's
residential monthly service rate not exceeding $2 per year, effective March
1 of the year when such mean is determined, with the remainder applied
at the rate of $2 per year, but not to exceed the affordable rate.

      (2) For single line business service at any time, an affordable rate
shall be the existing rate or an amount $3 greater than the affordable rate
for residential service as determined under provision (1) of this subsection,
whichever is higher, except that any increase in the business service af-
fordable rate exceeding $2 may be satisfied by increases in a rural tele-
phone company's business monthly service rate not exceeding $2 per year,
effective March 1 of the year when such rate is determined, with the
remainder applied at the rate of $2 per year, but not to exceed the af-
fordable rate.

      (3) Any flat fee or charge imposed per line on all residential service
or single line business service, or both, other than a fee or charge for
contribution to the KUSF or imposed by other governmental authority,
shall be added to the basic service rate for purposes of determining an
affordable rate pursuant to this subsection.

      (4) Not later than March 1, 2003, tone dialing shall be made available
to all local service customers of each rural telephone company at no charge
additional to any increase in the local service rate to become effective on
that date. The amount of revenue received as of March 1, 2002, by a rural
telephone company from the provision of tone dialing service shall be
excluded from reductions in the company's KUSF support otherwise re-
sulting pursuant to this subsection.

      (5) A rural telephone company which raises one or more local service
rates on application made after February 20, 2002, and pursuant to sub-
section (b) of K.S.A. 66-2007, and amendments thereto, shall have the
level of its affordable rate increased by an amount equal to the amount of
the increase in such rate.

      (6) Upon motion by a rural telephone company, the commission may
determine a higher affordable local residential or business rate for such
company if such higher rate allows the company to provide additional or
improved service to customers, but any increase in a rural telephone com-
pany's local rate attributable to the provision of increased calling scope
shall not be included in any subsequent recalculation of affordable rates
as otherwise provided in this subsection.

      (7) A uniform rate for residential and single line business local service
adopted by a rural telephone company shall be deemed an affordable rate
for purposes of this subsection if application of such uniform rate gener-
ates revenue equal to that which would be generated by application of
residential and business rates which are otherwise deemed affordable
rates for such company under this subsection.

      (8) The provisions of this subsection relating to the implementation
of an affordable rate shall not apply to rural telephone companies which
do not receive KUSF support. When recalculating affordable rates as pro-
vided in this subsection, the rates used shall include the actual rates
charged by rural companies that do not receive KUSF support.

      (f) For regulatory reform plans in which price cap regulation has been
elected, price cap plans shall have three baskets: Residential and single-
line business, including touch-tone; switched access services; and miscel-
laneous services. The commission shall establish price caps at the prices
existing when the regulatory plan is filed subject to rate rebalancing as
provided in subsection (c) for residential services, including touch-tone
services, and for single-line business services, including touch-tone serv-
ices, within the residential and single-line business service basket. The
commission shall establish a formula for adjustments to the price caps.
The commission also shall establish price caps at the prices existing when
the regulatory plan is filed for the miscellaneous services basket. The
commission shall approve any adjustments to the price caps for the mis-
cellaneous service basket, as provided in subsection (f) (g).

      (f) (g) On or before January 1, 1997, the commission shall issue a
final order in a proceeding to determine the price cap adjustment formula
that shall apply to the price caps for the local residential and single-line
business and the miscellaneous services baskets and for sub-categories, if
any, within those baskets. In determining this formula, the commission
shall balance the public policy goals of encouraging efficiency and pro-
moting investment in a quality, advanced telecommunications network in
the state. The commission also shall establish any informational filing
requirements necessary for the review of any price cap tariff filings, in-
cluding price increases or decreases within the caps, to verify such caps
would not be exceeded by any proposed price change. The adjustment
formula shall apply to the price caps for the local residential and single-
line business basket after December 31, 1999, and to the miscellaneous
services basket after December 31, 1997. The price cap formula, but not
actual prices, shall be reviewed every five years.

      (g) (h) The price caps for the residential and single-line business serv-
ice basket shall be capped at their initial level until January 1, 2000, except
for any increases authorized as a part of the revenue neutral rate rebal-
ancing under subsection (c). The price caps for this basket and for the
categories in this basket, if any, shall be adjusted annually after December
31, 1999, based on the formula determined by the commission under
subsection (f) (g).

      (h) (i) The price cap for the switched access service basket shall be
set based upon the local exchange carrier's intrastate access tariffs as of
January 1, 1997, except for any revenue neutral rate rebalancing author-
ized in accordance with subsection (c). Thereafter, the cap for this basket
shall not change except in connection with any subsequent revenue neu-
tral rebalancing authorized by the commission under subsection (c).

      (i) (j) The price caps for the miscellaneous services basket shall be
adjusted annually after December 31, 1997, based on the adjustment
formula determined by the commission under subsection (f) (g).

      (j) (k) A price cap is a maximum price for all services taken as a whole
in a given basket. Prices for individual services may be changed within
the service categories, if any, established by the commission within a
basket. An entire service category, if any, within the residential and single-
line business basket or miscellaneous services basket may be priced below
the cap for such category. Unless otherwise approved by the commission,
no service shall be priced below the price floor which will be long-run
incremental cost and imputed access charges. Access charges equal to
those paid by telecommunications carriers to local exchange carriers shall
be imputed as part of the price floor for toll services offered by local
exchange carriers on a toll service basis.

      (k) (l) A local exchange carrier may offer promotions within an
exchange or group of exchanges. All promotions shall be approved by the
commission and shall apply to all customers in a nondiscriminatory man-
ner within the exchange or group of exchanges.

      (l) (m) Unless the commission authorizes price deregulation at an
earlier date, intrastate toll services within the miscellaneous services bas-
ket shall continue to be regulated until the affected local exchange carrier
begins to offer 1 + intraLATA dialing parity throughout its service terri-
tory, at which time intrastate toll will be price deregulated, except that
prices cannot be set below the price floor.

      (m) (n) On or before July 1, 1997, the commission shall establish
guidelines for reducing regulation prior to price deregulation of price cap
regulated services in the miscellaneous services basket, the switched ac-
cess services basket, and the residential and single-line business basket.

      (n) (o) Subsequent to the adoption of guidelines pursuant to subsec-
tion (m) (n), the commission shall initiate a petitioning procedure under
which the local exchange carrier may request rate range pricing. The
commission shall act upon a petition within 21 days, subject to a 30-day
suspension. The prices within a rate range shall be tariffed and shall apply
to all customers in a nondiscriminatory manner in an exchange or group
of exchanges.

      (o) (p) A local exchange carrier may petition the commission to des-
ignate an individual service or service category, if any, within the miscel-
laneous services basket, the switched access services basket or the resi-
dential and single-line business basket for reduced regulation. The
commission shall act upon a petition for reduced regulation within 21
days, subject to a suspension period of an additional 30 days, and upon a
good cause showing of the commission in the suspension order, or within
such shorter time as the commission shall approve. The commission shall
issue a final order within the 21-day period or within a 51-day period if
a suspension has been issued. Following an order granting reduced reg-
ulation of an individual service or service category, the commission shall
act on any request for price reductions within seven days subject to a 30-
day suspension. The commission shall act on other requests for price cap
adjustments, adjustments within price cap plans and on new service of-
ferings within 21 days subject to a 30-day suspension. Such a change will
be presumed lawful unless it is determined the prices are below the price
floor or that the price cap for a category, if any, within the entire basket
has been exceeded.

      (p) (q) The commission may price deregulate within an exchange
area, or at its discretion on a statewide basis, any individual service or
service category upon a finding by the commission that there is a tele-
communications carrier or an alternative provider providing a comparable
product or service, considering both function and price, in that exchange
area. The commission shall act upon a petition for price deregulation
within 21 days, subject to a suspension period of an additional 30 days,
and upon a good cause showing of the commission in the suspension
order, or within such shorter time as the commission shall approve; pro-
vided that no such petition shall be filed prior to July 1997, unless the
commission otherwise authorizes. The commission shall issue a final order
within the 21-day period or within a 51-day period if a suspension has
been issued.

      (q) (r) Upon complaint or request, the commission may investigate a
price deregulated service. The commission shall resume price regulation
of a service provided in any exchange area by placing it in the appropriate
service basket, as approved by the commission, upon a determination by
the commission that there is no longer a telecommunications carrier or
alternative provider providing a comparable product or service, consid-
ering both function and price, in that exchange area.

      (r) (s) The commission shall require that for all local exchange carriers
all such price deregulated basic intraLATA toll services be geographically
averaged statewide and not be priced below the price floor established
in subsection (j) (k).

      (s) (t) Cost studies to determine price floors shall be performed as
required by the commission in response to complaints. In addition, not-
withstanding the exemption in subsection (b), the commission may re-
quest information necessary to execute any of its obligations under the
act.

      (t) (u) A local exchange carrier may petition for individual customer
pricing. The commission shall respond expeditiously to the petition within
a period of not more than 30 days subject to a 30-day suspension.

      (u) (v) No audit, earnings review or rate case shall be performed with
reference to the initial prices filed as required herein.

      (v) (w) Telecommunications carriers shall not be subject to price reg-
ulation, except that: Access charge reductions shall be passed through to
consumers by reductions in basic intrastate toll prices; and basic toll prices
shall remain geographically averaged statewide. As required under K.S.A.
66-131, and amendments thereto, and except as provided for in subsec-
tion (c) of K.S.A. 2001 Supp. 66-2004, and amendments thereto, telecom-
munications carriers that were not authorized to provide switched local
exchange telecommunications services in this state as of July 1, 1996,
including cable television operators who have not previously offered tel-
ecommunications services, must receive a certificate of convenience
based upon a demonstration of technical, managerial and financial via-
bility and the ability to meet quality of service standards established by
the commission. Any telecommunications carrier or other entity seeking
such certificate shall file a statement, which shall be subject to the com-
mission's approval, specifying with particularity the areas in which it will
offer service, the manner in which it will provide the service in such areas
and whether it will serve both business customers and residential custom-
ers in such areas. Any structurally separate affiliate of a local exchange
carrier that provides telecommunications services shall be subject to the
same regulatory obligations and oversight as a telecommunications car-
rier, as long as the local exchange carrier's affiliate obtains access to any
services or facilities from its affiliated local exchange carrier on the same
terms and conditions as the local exchange carrier makes those services
and facilities available to other telecommunications carriers. The com-
mission shall oversee telecommunications carriers to prevent fraud and
other practices harmful to consumers and to ensure compliance with
quality of service standards adopted for all local exchange carriers and
telecommunications carriers in the state.

      Sec.  2. K.S.A. 2001 Supp. 66-2008 is hereby amended to read as
follows: 66-2008. On or before January 1, 1997, the commission shall
establish the Kansas universal service fund, hereinafter referred to as the
KUSF.

      (a) The initial amount of the KUSF shall be comprised of local
exchange carrier revenues lost as a result of rate rebalancing pursuant to
subsection (c) of K.S.A. 2001 Supp. 66-2005 and amendments thereto
and subsection (a) of K.S.A. 2001 Supp. 66-2007 and amendments
thereto. Such revenues shall be recovered on a revenue neutral basis. The
revenue neutral calculation shall be based on the volumes and revenues
for the 12 months prior to September 30, 1996, adjusted for any rate
changes.

      (b) The commission shall require every telecommunications carrier,
telecommunications public utility and wireless telecommunications serv-
ice provider that provides intrastate telecommunications services to con-
tribute to the KUSF on an equitable and nondiscriminatory basis. Any
telecommunications carrier, telecommunications public utility or wireless
telecommunications service provider which contributes to the KUSF may
collect from customers an amount equal to such carrier's, utility's or pro-
vider's contribution, except that before January 1, 2000, no such carrier,
provider or utility shall collect from customers an amount in excess of
8.89% of its intrastate retail revenues as provided in commission docket
no. 190-492-U but such carrier, provider or utility may collect a lesser
amount from its customer.

      Prior to January 1, 2000, with respect to wireless telecommunications
service providers, an equitable and nondiscriminatory rate shall be an
amount equal to the rate of contributions of wireline telecommunications
service providers, as determined by the commission, reduced by the per-
centage minutes of usage initiated and terminated entirely over the wire-
less network as determined by the commission. The commission shall
establish such rate for wireless telecommunications service providers no
later than December 31, 1998. Any contributions in excess of distributions
collected in any reporting year shall be applied to reduce the estimated
contribution that would otherwise be necessary for the following year.

      (c) (b) Pursuant to the federal act, distributions from the KUSF shall
be made in a competitively neutral manner to qualified telecommunica-
tions public utilities, telecommunications carriers and wireless telecom-
munications providers, that are deemed eligible both under subsection
(e)(1) of section 214 of the federal act and by the commission.

      (d) (c) The commission shall periodically review the KUSF to deter-
mine if the costs of qualified telecommunications public utilities, tele-
communications carriers and wireless telecommunications service provid-
ers to provide local service justify modification of the KUSF. If the
commission determines that any changes are needed, the commission
shall modify the KUSF accordingly.

      (e) (d) Any qualified telecommunications carrier, telecommunica-
tions public utility or wireless telecommunications service provider may
request supplemental funding from the KUSF based upon a percentage
increase in access lines over the 12-month period prior to the request.
The supplemental funding shall be incurred for the purpose of providing
services to and within the service area of the qualified telecommunica-
tions carrier, telecommunications public utility or wireless telecommu-
nications service provider. Supplemental funding from the KUSF shall
be used for infrastructure expenditures necessary to serve additional cus-
tomers within the service area of such qualifying utility, provider or car-
rier. All affected parties shall be allowed to review and verify a request
of such a qualified utility, carrier or provider for supplemental funding
from the KUSF, and to intervene in any commission proceeding regard-
ing such request. The commission shall issue an order on the request
within 120 days of filing. Additional funding also may be requested for:
The recovery of shortfalls due to additional rebalancing of rates to con-
tinue maintenance of parity with interstate access rates; shortfalls due to
changes to access revenue requirements resulting from changes in federal
rules; additional investment required to provide universal service and en-
hanced universal service, deployed subject to subsection (a) of K.S.A. 66-
2005, and amendments thereto; and for infrastructure expenditures in
response to facility or service requirements established by any legislative,
regulatory or judicial authority. Such requests shall be subject to simpli-
fied filing procedures and the expedited review procedures, as outlined
in the stipulation attached to the order of November 19, 1990 in docket
no. 127,140-U (Phase IV).

      (e) Prior to June 30, 2006, for each local exchange carrier electing
pursuant to subsection (b) of K.S.A. 66-2005, and amendments thereto,
to operate under traditional rate of return regulation, all KUSF support,
including any adjustment thereto pursuant to this section shall be based
on such carrier's embedded costs, revenue requirements, investments and
expenses.

      (f) Additional supplemental funding from the KUSF, other than as
provided in subsection (e) of this section (d), may be authorized at the
discretion of the commission. However, the commission may require ap-
proval of such funding to be based upon a general rate case filing. With
respect to any request for additional supplemental funding from the
KUSF, the commission shall act expeditiously, but shall not be subject to
the 120 day deadline set forth in subsection (e) (d). 
Sec.  3. K.S.A. 2001 Supp. 66-2005, 66-2008, 66-2012 and 66-2016
are hereby repealed.
 Sec.  4. This act shall take effect and be in force from and after its
publication in the statute book.

Approved May 29, 2002.
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