Will the PUC Force California to Become the First State to Regulate the Internet?

Steven Maviglio
Principal of Forza Communications, a Sacramento-based public affairs/campaign firm

Last Friday, Facebook became a $140 billion company, the latest success story in the Golden State’s technology industry that employs nearly 930,000 Californians, according to an estimate from the TechAmerica Foundation. Yet incredibly, even with Gov. Jerry Brown telling the Silicon Valley Leadership Group that his administration is moving to cut regulations, the California Public Utilities Commission (PUC) and Brown appointed Commmissioners seem hellbent on being the first state regulatory agency in the nation to regulate the Internet, a move that’s unpopular with both internet users and the job-creating companies based here.

The flash point is legislation (SB 1161) introduced by Senator Alex Padilla (D-Los Angeles) that would prevent the PUC from regulating the Internet unless the Legislature authorizes it to do so. The PUC seems to be pulling out all the stops to try to scuttle the legislation, and is widely expected to take a formal position against the bill when it meets on Thursday.

Fireworks over the PUC’s attempt at internet regulation already have begun. Most notably, when the PUC issued a fiscal analysis of the bill early last week that it sent to the Senate Appropriations Committee. To nearly everyone’s amazement, the PUC said it would cost the agency more than $1 billion not to regulate the Internet.

When that analysis reached the Senate, bewildered legislators began to raise questions. How could it cost an agency money not to regulate? Why would 57 new staffers be needed by the agency to not develop industry-strangling regulations? How could the agency — which doesn’t’ have jurisdiction now over over Voice over Internet Protocols like Skype and Vonage — determine a price tag of that magnitude for an industry whose technology would likely outpace the PUC’s ability to regulate it?

It didn’t take long for the PUC to retreat. Within days, the PUC’s legal counsel issued a letter of apology to Senator Padilla, noting the PUC’s fiscal analysis had not been properly vetted by the agency.

And then, at the Appropriations Committee hearing on the bill, the state’s Department of Finance stated what everyone else thought was obvious. “Finance believes this bill will not result in costs to the PUC.”

But still, the PUC appears to be bureaucracy run amok, deciding to expand its turf into an area that it hasn’t regulated and has no business doing so unless the Legislature gives it the green light.

For starters, contrary to claims of some consumer groups and several PUC commissioners, the agency does not currently regulate the Internet. It says so on its own website. There the CPUC asks the question: “Does the Commission Regulate VoIP?” Answer: “The Federal Communications Commission has determined that it, not the states, will prescribe regulations that apply to IP-enabled services.”

On top of that, the PUC’s planned intrusion into Internet regulation also appears to violate federal law. The FCC recently struck down an attempt by Minnesota to regulate broadband services, citing a Congressional directive that requires it to keep its hands off the Internet. In its decision, the FCC noted “Internet-based services such as (Vonage’s service) are capable of being addressed only via broadband facilities, i.e., advanced telecommunications capabilities under the 1996 Act, thus driving consumer demand for broadband connections, and consequently encouraging more broadband investment and deployment….”

That’s perhaps why Padilla’s legislation has strong bipartisan support. At the hearing, Democratic State Senators Ted Lieu, Curren Price, and Elaine Alquist expressed their concern about PUC regulation, as did Republican Sen. Mimi Walters.

“This is not a radical restructuring at all,” said Sen. Padilla in summarizing the bill at the hearing. “All we are attempting to do with this bill is to put in statute the regulatory approach our state and frankly our country has pursued for many, many years that has lead to the maintenance of consumer protection that is importance to us but at the same time, fostering the innovation, the investment, the consumer benefits, and the economic activity that has resulted” from the growth of the state’s blossoming Internet-based economy.

The Senate Appropriations Committee will meet again this week to review the bill. Let’s hope they do the right thing and move the bill forward.

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