BILL ANALYSIS
AB 2669
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Date of Hearing: May 1, 2002
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Darrell Steinberg, Chair
AB 2669 (Maldonado) - As Introduced: February 22, 2002
Policy Committee: Utilities and
Commerce Vote: 15-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill permits telephone companies that are regulated under a
"price cap" regulatory structure to issue stock or debt without
Public Utilities Commission (PUC) approval, as long as the
company does not pledge a plant or assets to secure the
financing, or unless the commission determines that its approval
of the financing would be in the public interest.
FISCAL EFFECT
Potential savings to the PUC from avoided reviews of company
financing transactions.
(Current law authorizes the PUC to review and approve stock and
security transactions of public utilities and allows the PUC to
waive review and approval if it finds that it is in the public
interest to do so.)
COMMENTS
1)Purpose . Historically, telephone companies were regulated
under a rate-of-return framework. In response to changing
industry conditions, the PUC replaced general rate case
application proceedings in 1989 with a New Regulatory
Framework (NRF). NRF began an incentive-based regulatory
process centered on a price cap indexing mechanism that
focused on the prices telephone companies may charge for
various services.
Verizon, the sponsor of AB 2669, contends that continued
"pre-approval" of financing transactions is unnecessary under
AB 2669
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an incentive-based price cap regulatory scheme because the
shareholders bear the entire risk of the operations and the
financial decisions of the company. Customers are no longer
responsible for bailing out a telephone company for business
decisions. Thus, Verizon believes that it has an incentive to
seek the lowest possible financing because it cannot pass on
any excess costs to ratepayers. Verizon contends that
continued PUC pre-approval has disadvantaged the company
because the timeframes involved in taking advantage of
favorable financing opportunities are very short, and the
PUC's approval can take several months. Furthermore, Verizon
indicates that it cannot request authority to issue long-term
debt securities that would anticipate all types of financing
opportunities.
2)Prior Legislation . This bill is identical to AB 1082
(Calderon), which passed the Legislature in 2000, but was
vetoed by the governor. The veto message states in part that
AB 1082 "duplicates existing PUC procedures that allow the PUC
to exempt telephone companies on a case-by-case basis from
regulatory review of their financing proposals. It also
places ratepayers at risk if local telephone companies make
bad financial decisions and must seek additional forms of
revenue to offset the losses."
3)Opposition . The Office of Ratepayer Advocates (ORA) contends
that this bill could affect all ratepayer classes since
certain securities transactions may have an effect on
price-cap regulation. According to the ORA, if a regulated
utility issues additional stock, the transaction costs of the
stock issuance may be compensable in rates. If the PUC deemed
them compensable, rates would increase to reflect the
transaction costs, but the PUC could only evaluate the level
of transaction costs since they would not be able to evaluate
the reasonableness of the stock issue itself the ORA supported
AB 1082 in 2000, however, stating among other things that
"[o]stensibly, earnings are no longer tied to rates, and
therefore the necessity to review the prudence of
investments?is obviated."
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081