Will FCC Tax Smart Meters?

Approximately 36 million smart meters' having been deployed in the United States and the Institute for Electric Efficiency (IEE) estimates this number will nearly double to 65 million smart meters deployed in nearly half of all households by 2015.  This proliferation of connected devices has caught the attention of the Federal Communications Commission (FCC), which is looking for new revenue sources to pay for the federal Universal Service program. The FCC is assessing whether to broaden the base of entities and services that would be required to contribute to the program, as well as the mechanism for assessing such fees. Among the many proposals under FCC consideration is fees on smart grid connections.

The Federal Universal Service Program

Universal Service is a multifaceted program that helps finance broadband connections to schools, libraries and rural health care centers, subsidizes telephone service for low-income individuals and families and supports the construction and operation of telecommunications networks in costly to-serve rural areas. Total 2011 funding for the program was some $8.1 billion.

The commission established a new Connect America Fund to help make affordable broadband services, including mobile services, available to rural homes, businesses and anchor institutions that otherwise could not afford broadband.

Money to pay for Universal Service programs has been collected from telecommunications carriers, which are required to contribute a specified percentage of their interstate long-distance revenues from retail end users. This funding mechanism is outdated. Many telephone service providers, wireless and wireline, no longer sell stand-alone long-distance services. Instead they offer bundled, all-distance buckets of local and long-distance calling. Many consumers make calls using the Internet, which might not be subject to the current collection process. Telephone providers, which increasingly include cable operators, receive substantial revenues from selling high-speed Internet access and other services that do not pay into the Universal Service fund.

As a result, the funding falls heavily on a handful of carriers that receive a shrinking portion of their revenues from long-distance services.

According to the FCC, three-quarters of Universal Service funding comes from five companies: AT&T Inc., CenturyLink Inc., Sprint Nextel Corp., T-Mobile USA Inc. and Verizon Communications Inc. These companies also receive substantial funding from the program. As program costs increase and the funding base contracts, carriers are assessed an ever-higher percentage of their long-distance revenues. In 2000, the contribution factor was some 5 to 6 percent of interstate revenues. Now, the contribution factor exceeds 17 percent. Carriers pass these costs through to their customers. There is broad consensus that the current mechanism is unsustainable.

To help alleviate the increasing burden on existing contributors and their customers who face higher bills when the carriers pass through the Universal Service fees, the FCC is revisiting the contribution system.

The commission wants to expand the number and type of services that would be assessed a Universal Service fee and is considering how to assess a fee on such services. The FCC is proposing to include in the contribution base retail broadband Internet access services and Internet-based calling services such as those provided by Skype or Google. Regarding the funding mechanism, the commission is proposing to retain, with modifications, a fee assessed on revenues, to impose a fee based on network connections or both.

Among the many proposals under consideration is whether to impose a fee on any entity that provides data transmission to end users using their own facilities or a transmission service purchased from a carrier.  One possibility lies in the commission's proposal to assess fees based on a network connection, which could be a physical facility (wireline or wireless) connecting two or more points or a service provided over a physical facility (think high-speed Internet access services provided over fiber, cable plant or a wireless network).

There is broad consensus that the Universal Service contribution system is broken and must be revised. There is no consensus on to how to fix it, and the FCC has left open a large range of possibilities. (Electric Light & Power, Jul-Aug)