Senate File 404 SENATE FILE BY COMMITTEE ON COMMERCE (SUCCESSOR TO SSB 1037) Passed Senate, Date Passed House, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act relating to provision of telecommunications services by 2 municipal utilities, including discovery of competitive 3 information, permitted loans, and making related changes. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 1757SV 80 6 jj/sh/8 PAG LIN 1 1 Section 1. Section 388.9, Code 2003, is amended by adding 1 2 the following new subsection: 1 3 NEW SUBSECTION. 3. The restrictions and limitations 1 4 applicable under subsections 1 and 2 to public disclosure, 1 5 examination, and copying of competitive information of a city 1 6 utility, a combined utility system, a city enterprise, or 1 7 combined city enterprise shall not apply when discovery of 1 8 such information is sought by a person during civil 1 9 litigation. A person seeking to protect the material from 1 10 disclosure shall not succeed on the grounds that the 1 11 information constitutes a trade secret or other confidential 1 12 research, development, or commercial information not to be 1 13 disclosed or to be disclosed only in a designated way, or that 1 14 the information otherwise falls within the general category of 1 15 protection for proprietary information. 1 16 Sec. 2. Section 388.10, Code 2003, is amended to read as 1 17 follows: 1 18 388.10 CITY OR MUNICIPAL UTILITY PROVIDINGLOCAL EXCHANGE1 19 TELECOMMUNICATIONS SERVICES. 1 20 1. a. A city providing or that owns or operates a 1 21 municipal utility providinglocal exchange services pursuant 1 22 to chapter 476any telecommunications service or the municipal 1 23 utility shall not do, directly or indirectly, any of the 1 24 following: 1 25 (1)UseExcept for a permitted loan, use general fund 1 26 moneysfor the ongoing support or subsidyor other moneys 1 27 derived from tax revenues, directly or indirectly, to finance 1 28 or in any way to otherwise support either of the following: 1 29 (a) The establishment, construction, reconstruction, 1 30 upgrade, maintenance, or operation of a telecommunications 1 31 system. 1 32 (b) The provision of any telecommunications service. 1 33 (2) Provide any city or utility facilities, equipment, or 1 34 services to provide a telecommunicationssystemssystem or 1 35servicesany telecommunications service at a cost for such 2 1 facilities, equipment, or serviceswhichthat is less than the 2 2 reasonable cost of providing such city facilities, equipment, 2 3 or services. 2 4 (3) Provide any other city service, other than a 2 5 communications service, to a telecommunications customer at a 2 6 cost which is less than would be paid by the same person 2 7 receiving such other city service if the person was not a 2 8 telecommunications customer. 2 9 (4)UseExcept for a permitted loan, use funds or revenue 2 10 generated from electric, gas, water, sewage, or garbage 2 11 services provided by the cityfor the ongoing support of that 2 12 portion of a system or service used to provide local exchange 2 13 servicesor the utility, directly or indirectly, to finance or 2 14 in any way to otherwise support either of the following: 2 15 (a) The establishment, construction, reconstruction, 2 16 upgrade, maintenance, or operation of any telecommunications 2 17 system. 2 18 (b) The provision of any telecommunications service. 2 19 b. For purposes of this section,"telecommunications2 20 unless the context otherwise requires: 2 21 (1) "Combined utility system" means the same as defined in 2 22 section 384.80. 2 23 (2) "Cost" of any facilities, equipment, services, or 2 24 other goods or services shall include all attributable cost 2 25 and expenses, whether direct or indirect, fixed or variable, 2 26 including without limitation, a fair and equitable allocation 2 27 of all of the following: 2 28 (a) Taxes. 2 29 (b) The costs of any necessary capital for the 2 30 construction or acquisition of the item or the facilities by 2 31 which the service is provided. 2 32 (c) Amortization of any capital that is required to be 2 33 repaid. 2 34 (d) Depreciation. 2 35 (e) Amortization of capitalized costs. 3 1 (3) "Permitted loan" means any borrowing or transfer of 3 2 moneys or funds from a municipality or a nontelecommunications 3 3 municipal utility to a separate telecommunications utility of 3 4 the municipality that meets the requirements of paragraphs "c" 3 5 through "e". 3 6 (4) "Support" means to provide financial support in any 3 7 form, whether temporary or permanent, including but not 3 8 limited to transfers of money or other assets, purchases of 3 9 securities, capital contributions or other investments, loans 3 10 or other extensions of credit, leases, payment of money, 3 11 guarantees, pledges, or hypothecations or property or 3 12 indemnities or other arrangements by which there is recourse 3 13 to the revenues or other assets of the city or municipal 3 14 utility other than any revenues derived solely from the 3 15 operations of a telecommunications service or assets of the 3 16 related telecommunications system. 3 17 (5) "Telecommunications system" meansonly that portion of 3 18 a system or facilities which is used to provide local exchange 3 19 servicesa system that provides any telecommunications 3 20 service. 3 21 (6) "Telecommunications service" means the provision of 3 22 any of the following services: 3 23 (a) Cable television service. 3 24 (b) Internet service. 3 25 (c) Local exchange telephone service. 3 26 (d) Long distance telephone service. 3 27 (e) Retail data transmission. 3 28 c. (1) A permitted loan may not be made to or within a 3 29 combined utility system that provides any telecommunications 3 30 service. 3 31 (2) The amount of a permitted loan shall not exceed the 3 32 lesser of any amount approved in a public referendum or the 3 33 cost of initial construction of the physical 3 34 telecommunications system plus an allowance for working 3 35 capital not to exceed the highest three months of revenue from 4 1 recurring monthly customer charges reasonably forecast to 4 2 occur during the first twelve months of operation of the 4 3 telecommunications system. 4 4 (3) The annual rate of interest charges on a permitted 4 5 loan shall not be less than the rate established by the 4 6 federal communications commission, from time to time, as the 4 7 presumptively reasonable cost of capital rate used to compute 4 8 regulated service rates for the provision of cable television 4 9 services or, if no such rate exists, then the interest rate 4 10 shall be no less than the prevailing prime interest rate plus 4 11 five hundred basis points. Interest payments shall be 4 12 remitted in full to the lender no less frequently than 4 13 annually. The principal of a permitted loan shall be repaid 4 14 no less frequently than in annual installments, beginning not 4 15 later than three years after the first draw of loan proceeds 4 16 and the principal shall be fully repaid within fifteen years 4 17 of the date of the first draw of loan proceeds. Annual 4 18 principal payments shall be in amounts not less than the 4 19 outstanding principal amount divided by the number of annual 4 20 payments to be made. The lending agreement for a permitted 4 21 loan shall contain loan covenants and nonfinancial terms and 4 22 conditions no more favorable than those typically found in a 4 23 comparable senior loan financing made in the cable or 4 24 telecommunications industries. 4 25 (4) In the event that a municipality or its utility should 4 26 default on any payment, material covenant, or other term or 4 27 condition of a permitted loan, the municipality or its utility 4 28 shall promptly publish a public notice of the default and have 4 29 sixty days to cure the default. A repeated default of the 4 30 same requirement, covenant, or other term or condition shall 4 31 not be subject to cure. The municipality or municipal utility 4 32 shall not waive a default or noncompliance. If the default is 4 33 not cured within the prescribed time, the municipality or its 4 34 utility shall sell or cease operation of the 4 35 telecommunications systems no later than twelve months 5 1 following the default. 5 2 d. This section shall not apply to a municipality or its 5 3 utility with respect to the provision of cable television 5 4 services within municipal boundaries if either of the 5 5 following circumstances exist within the municipality: 5 6 (1) A private provider of cable television services does 5 7 not offer cable television service in the municipality. 5 8 (2) A private provider of cable television services offers 5 9 cable television service within the municipality, but the 5 10 provider has not begun offering internet access within the 5 11 municipality by October 1, 2004, at a speed equal to the 5 12 minimum requirements for advanced telecommunications services 5 13 as determined by the federal communications commission. 5 14 e. This section shall not restrict any of the following 5 15 actions: 5 16 (1) The procurement of telecommunications service by a 5 17 municipality or its utility to the extent the 5 18 telecommunications services are to be used solely for the 5 19 internal operations of the municipality or its utility and 5 20 such services will not be made available for resale or to the 5 21 general public. 5 22 (2) The procurement of feasibility studies related to the 5 23 provision of telecommunications services by a municipality or 5 24 its utility. 5 25 (3) Funding from any source the costs of litigation when a 5 26 competing utility is a party to the litigation. 5 27 f. (1) This section shall not affect the validity of 5 28 borrowings or loans outstanding as of December 31, 2002, that 5 29 complied with and continue to comply with the provisions of 5 30 this section that were in effect on December 31, 2002, which 5 31 loans shall also be known as "grandfathered loans". 5 32 (2) In the event a grandfathered loan is extended in term, 5 33 increased in amount, or modified in any substantive manner, 5 34 all of the terms and conditions of the grandfathered loan 5 35 shall comply fully with the requirements of a permitted loan. 6 1 (3) A municipality or municipal utility shall not waive 6 2 compliance with any requirement of a grandfathered loan. 6 3 2. A city providing or that owns or operates a municipal 6 4 utility providinglocal exchange services pursuant to chapter 6 5 476telecommunications service, whether or not pursuant to 6 6 chapter 476, or the municipal utility shall do the following: 6 7 a. Prepare and maintain records which record the full cost 6 8 accounting of providinglocal exchangetelecommunications 6 9 service. The records shall show the amount,andsource, and 6 10 cost of capital for initial construction or acquisition of the 6 11local exchangetelecommunications system or facilities. This 6 12 section shall not prohibit a municipal utility from utilizing 6 13 capital from any lawful source, provided that the reasonable 6 14 cost of such capital is accounted for as a cost of providing 6 15 the service and no violation of subsection 1, paragraph "a", 6 16 subparagraph (1) or (4), would result. 6 17 b. Adopt rates for the provision oflocal exchange 6 18 servicestelecommunications service that reflect the actual 6 19 cost of providingthe local exchangetelecommunications 6 20 service. However, this paragraph shall not prohibit the 6 21 municipal utility from establishing market=based prices for 6 22 competitivelocal exchange servicestelecommunications 6 23 services, provided that no violation of subsection 1, 6 24 paragraph "a", subparagraph (1) or (4), would result. 6 25 c. Be subject to all requirements of the citywhichthat 6 26 would apply to any other provider oflocal exchange6 27 telecommunications services in the same manner as such 6 28 requirements would apply to such other provider. 6 29 3. This section shall not prohibit the marketing or 6 30 bundling of other products or services,in addition to local 6 31 exchangeby the municipal utility as well as any 6 32 telecommunications services. However, a city shall include on 6 33 a billing statement sent to a person receiving services from 6 34 the city, a separate charge for each individual service 6 35 provided to the person, such as electricity, local exchange, 7 1 or internet access. This subsection does not prohibit the 7 2 city from also including on the billing statement a total 7 3 amount to be paid by the person. 7 4 Sec. 3. Section 427.1, subsection 2, Code 2003, is amended 7 5 to read as follows: 7 6 2. MUNICIPAL AND MILITARY PROPERTY. The property of a 7 7 county, township, city, school corporation, levee district, 7 8 drainage district, or the Iowa national guard, when devoted to 7 9 public use and not held for pecuniary profit, except property 7 10 of a municipally owned electric utility held under joint 7 11 ownership and property of an electric power facility financed 7 12 under chapter 28F or 476A that shall be subject to taxation 7 13 under chapter 437A and facilities of a municipal utility or a 7 14 city that are used for the provision oflocal exchange 7 15 services pursuant to chapter 476, but only to the extent such 7 16 facilities are used to provide such services,7 17 telecommunications services as defined in section 388.10 which 7 18 shall be subject to taxation under chapter 433, except that 7 19 section 433.11 shall not apply, and subject to taxation under 7 20 chapter 441, as applicable. However, notwithstanding anything 7 21 in this subsection to the contrary, the electric lines of a 7 22 municipally owned electric utility are subject to property 7 23 taxation to the extent such electric lines are used to provide 7 24 telecommunications services. The exemption for property owned 7 25 by a city or county also applies to property which is operated 7 26 by a city or county as a library, art gallery or museum, 7 27 conservatory, botanical garden or display, observatory or 7 28 science museum, or as a location for holding athletic 7 29 contests, sports or entertainment events, expositions, 7 30 meetings or conventions, or leased from the city or county for 7 31 any such purposes, or leased from the city or county by the 7 32 Iowa national guard or by a federal agency for the benefit of 7 33 the Iowa national guard when devoted for public use and not 7 34 for pecuniary profit. Food and beverages may be served at the 7 35 events or locations without affecting the exemptions, provided 8 1 the city has approved the serving of food and beverages on the 8 2 property if the property is owned by the city or the county 8 3 has approved the serving of food and beverages on the property 8 4 if the property is owned by the county. 8 5 Sec. 4. APPLICABILITY. A municipal utility shall not be 8 6 subject to this Act if it engages exclusively in the provision 8 7 of wholesale services under an open=access tariff without 8 8 facility=based competition. 8 9 EXPLANATION 8 10 This bill pertains to municipal utility systems, primarily 8 11 under Code chapter 388. 8 12 The bill amends Code section 388.9 to provide that certain 8 13 competitive business information of a city utility or city 8 14 enterprise that otherwise may be withheld from public 8 15 disclosure may not be shielded from disclosure in litigation 8 16 on the basis of the provisions of Code section 388.9, or that 8 17 the information constitutes a trade secret or other 8 18 confidential research, development, or commercial information 8 19 not to be disclosed. 8 20 The bill also amends Code section 388.10 to provide that a 8 21 city utility is prohibited from using general fund tax 8 22 revenues, except for permitted loans, to maintain or operate 8 23 telecommunications systems or services, and from using 8 24 revenues generated from a utility service such as electric, 8 25 gas, or water to pay for the maintenance or operation of 8 26 telecommunications service. The bill details the use of 8 27 permitted loans, provides for grandfathering of loans in 8 28 effect prior to December 31, 2002, and includes exceptions for 8 29 municipal utilities where no cable television services are 8 30 offered by private providers, or private providers have not 8 31 begun offering broadband services by October 1, 2004. The 8 32 bill also defines "combined utility system", "cost", 8 33 "support", "permitted loan", "telecommunications service", and 8 34 "telecommunications system". 8 35 The bill also changes language that requires a city that 9 1 owns a municipal utility providing telecommunications services 9 2 to perform certain activities, consistent with other changes 9 3 in the bill. 9 4 The bill also amends Code section 427.1 to make similar 9 5 language changes and provide for a property tax on electric 9 6 lines of a municipal utility that are used to provide 9 7 telecommunications services, and adds a reference to 9 8 assessment and valuation of property pursuant to Code chapter 9 9 441. 9 10 LSB 1757SV 80 9 11 jj/sh/8