STAND. COM. REP. NO. 1421

                                 Honolulu, Hawaii
                                                   , 1999

                                 RE: S.B. No. 785
                                     S.D. 1
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Economic Development and Business
Concerns, to which was referred S.B. No. 785, S.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO PUBLIC UTILITIES,"

begs leave to report as follows:

     The purpose of this bill is to require the Public Utilities
Commission (PUC) to replace an existing telecommunications
provider with an alternative provider when the PUC determines
that an area of the State has less than adequate service and the
existing provider fails to satisfy its burden in response to an
order to show cause why the PUC should not authorize an
alternative provider for that area.  The bill also allows the
alternative provider to acquire the former provider's property by
eminent domain as may be necessary for the provision of basic
local exchange service in the area.

     Testimony in support of this measure was submitted by
TelHawaii, Inc. and three individuals.  Testimony in support of
the intent of the measure was submitted by the Department of
Business, Economic Development and Tourism, AT&T, Oceanic
Communications, GST Telecom Hawaii, TelHawaii, and further
testimony from TelHawaii.  The Department of Commerce and
Consumer Affairs opposed the current draft of the bill.
Testimony in opposition to the bill was submitted by GTE Hawaiian
Tel.  Several of the testifiers preferred the language in the
original version of this bill and supported amendments to return
the measure to that form. 

 
 
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     Your Committee finds that the bill in its present form is
inadequate to fully restate and clarify the intent of the
Legislature in enacting Act 80, Session Laws of Hawaii (SLH)
1994.  To remove any doubt regarding the original intent of Act
80 (SLH 1994), your Committee intends by this bill to provide
that Act 80 (SLH 1994) mandates the replacement of the existing
provider when the PUC determines that (1) an area of the State
has less than adequate telecommunications service, and (2) the
existing telecommunications provider fails to justify why it
should not be replaced by an alternative provider for that area.

     This bill confirms the intent of Act 80 (SLH 1994) that the
PUC shall decertify the existing telecommunications carrier from
providing service in that area.  However, the decertified carrier
shall not be barred from reapplying to serve that area in the
future or from competing for selection as the alternative
telecommunications provider for the area.

     Your Committee also finds that the measure in its current
form would be ineffective in ensuring that service quality is
improved and maintained in an area suffering from less than
adequate telecommunications service.  To preserve universal
service and protect the public safety and welfare as intended by
the Legislature through Act 80 (SLH 1994), telecommunications
carriers, as defined in Hawaii Revised Statutes (HRS) section
269-1, have the power of eminent domain.  This power includes the
right to acquire from the decertified provider any property
rights necessary to provide service in the specified area and is
exercised with the oversight of the Commission.  The existing
telecommunications provider will receive just compensation for
any property taken by eminent domain.

     Furthermore, your Committee intends to clarify and confirm
the authority and procedures to be followed by public utilities
when they exercise the power of eminent domain.

     Your Committee, in order to effectuate the intent and
purpose of Act 80 (SLH 1994), has amended the bill by:

     (1)  Adding a discussion of the intent of this bill to
          expressly restate, reiterate, and declare the intent of
          the Legislature in enacting Act 80 (SLH 1994) to (a)
          replace an existing telecommunications carrier that
          fails to provide adequate service in an area and to
          justify why it should not be replaced, (b) decertify
          the existing provider from providing service in the
          specified area, and (c) permit the Commission to
          determine whether the alternative carrier may exercise
          its power of eminent domain to obtain those assets of

 
                                 STAND. COM. REP. NO. 1421
                                 Page 3

 
          the existing provider necessary to provide adequate
          service in the specified area;

     (2)  Adding a section to clarify the procedures under which
          a public utility may exercise its power of eminent
          domain, including the preconditions that (a) the public
          utility submit to the PUC its intention to exercise the
          power and a description of the property sought to be
          obtained, and (b) the PUC finds the condemnation is
          necessary, in the public interest, and the property
          taken will be used for operations as a public utility;

     (3)  Adding a paragraph clarifying that, if the PUC
          determines that the service of the existing
          telecommunications carrier is less than adequate in an
          area and has failed to show cause why it should not be
          replaced, the PUC may permit the alternative provider
          to exercise its power of eminent domain; 

     (4)  Specifying that a decertified carrier shall not be
          barred from reapplying for the right to serve the area
          in the future, competing for selection as the
          alternative telecommunications carrier for the area,
          and providing that the former provider shall receive
          just compensation for all property taken by eminent
          domain; and

     Your Committee notes that testimony recalled the history of
the PUC's determinations of inadequate service provided to the
rural areas of the State, posing life-threatening circumstances
and interfering with the social and commercial development of the
rural areas in the Decision and Order filed on November 4, 1994.
The PUC also held that GTE Hawaiian Tel did not have the ability
or commitment to properly improve its rural service in the
Decision and Order filed on December 1, 1995.  The PUC then
selected a replacement provider for the Ka'u area by decision and
Order filed on July 15, 1996, as required under Act 80 (SLH
1994).  Furthermore, in an order filed on August 15, 1996, the
PUC ordered the negotiation for the transfer or use of GTE
Hawaiian Tel's assets in the Ka'u district and clarified that
"transfer or use" of assets did not mean interconnection.

     Your Committee finds that the PUC allowed Tel Hawaii to
exercise the power of eminent domain after GTE Hawaiian Tel
refused to negotiate the transfer of assets to Tel Hawaii.  In
addition, the PUC emphasized that interconnection was
insufficient to ensure improved service reliability and quality
because interconnection would require that Tel Hawaii use GTE
Hawaiian Tel's substandard network.  The PUC reasoned that public

 
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utilities have the power of eminent domain, citing HRS section
101-4.  The PUC concluded that under section 3, Act 134 (SLH
1961), public utilities have the power to condemn the property,
including personal property, of another public utility only upon
receiving PUC approval.  In addition, the PUC held that public
utilities have the right to condemn personal property necessary
for the provision of service in an area that is served less than
adequately in the Decision and Order filed on may 23, 1997.

     Your Committee finds that federal and State policies to
promote universal telecommunications and the availability of
advanced services through competition where practicable support
the amendments to this bill.  Both the federal Telecommunications
Act of 1996 and Act 225 (SLH 1995) recognize that in rural areas
competition may not occur as soon as in urban area because of the
high cost of serving rural areas and the relatively small demand
for services.  In fact, both Acts permit rural telecommunications
providers to forego interconnection until it is economically
viable.

     As affirmed by the record of votes of the members of your
Committee on Economic Development and Business Concerns that is
attached to this report, your Committee is in accord with the
intent and purpose of S.B. No. 785, S.D. 1, as amended herein,
and recommends that it pass Second Reading in the form attached
hereto as S.B. No. 785, S.D. 1, H.D. 1, and be referred to the
Committees on Consumer Protection and Commerce and Judiciary and
Hawaiian Affairs.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Economic
                                   Development and Business
                                   Concerns,



                                   ______________________________
                                   ROBERT N. HERKES, Chair