BILL ANALYSIS
AB 2669
Page 1
ASSEMBLY THIRD READING
AB 2669 (Maldonado)
As Introduced February 22, 2002
Majority vote
UTILITIES AND COMMERCE 15-0 APPROPRIATIONS 23-0
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|Ayes:|Wright, Pescetti, Bill |Ayes:|Steinberg, Bates, |
| |Campbell, | |Alquist, Aroner, Ashburn, |
| |John Campbell, | |Cohn, Corbett, Correa, |
| |Canciamilla, Cardenas, | |Daucher, Diaz, Firebaugh, |
| |Diaz, Horton, Kelley, La | |Goldberg, Maldonado, |
| |Suer, Leonard, Maddox, | |Negrete McLeod, |
| |Nation, Papan, Reyes | |Robert Pacheco, Papan, |
| | | |Chu, Runner, Simitian, |
| | | |Washington, Wiggins, |
| | | |Wright, Zettel |
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SUMMARY : Permits telephone companies that are regulated under a
"price cap" regulatory structure to issue stock or debt unless
the California Public Utilities Commission (PUC) can prove that
the stock issuance would not be in the public interest.
Specifically, this bill :
1)Provides that requirements for PUC approval of issuance by
utilities of financial instruments, including stocks, bonds
and notes do not apply to a telephone corporation that is
regulated under a price-cap regulatory structure, as long as
the company doesn't pledge a plant or assets to secure the
financing.
2)Defines "price-cap regulatory structure" as a system under
which rates are limited by a maximum price that may be charged
for a service, not by a rate base or rate-of-return regulatory
form.
3)Specifies that PUC shall continue to approve issuance of
financial instruments for telephone companies that are also
electric or gas public utilities.
4)Allows PUC to re-impose PUC approval of stock and bond
issuance for telephone companies if PUC finds in a proceeding
that it is required by the public interest.
AB 2669
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EXISTING LAW :
1)Authorizes PUC to review and approve stock and security
transactions of public utilities.
2)Allows PUC to waive review and approval if it finds that it is
in the public interest to do so.
FISCAL EFFECT : Unknown
COMMENTS : Historically, the basic regulatory framework for
utility regulation in the state relied on traditional
cost-of-service regulation, commonly known as rate base and
rate-of-return regulation, to set rates for the utilities.
PUC's traditional cost-of-service regulation was challenged
based on changes in the telecommunications industry and the
California marketplace that occurred in the 1980's from
advancing technology and regulatory efforts to promote
competition and market principles in the telecommunications
market. In response to these changing industry conditions, 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 focused on the prices that
telephone companies may charge for various services.
The author and sponsors of this measure contend that continued
"pre-approval" regulation is unnecessary under 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 the company has every
incentive to seek the lowest possible financing because it
cannot pass on any excess costs to ratepayers.
Proponents contend that continued PUC pre-approval disadvantages
companies seeking to take advantage of favorable market
opportunities.
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.
AB 2669
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According to ORA, if a regulated utility issues additional
stock, the transaction costs of the stock issuance may be
compensable in rates. If PUC deemed them compensable, rates
would increase to reflect the transaction costs, but PUC could
only evaluate the level of transaction costs since they would
not be able to evaluate the reasonableness of the stock issue
itself.
ORA supported this issue when the matter was before the
Legislature in 2000, 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."
Related legislation: This bill is a re-introduction of AB 1082
(Calderon), which passed the legislature in 2000, but was vetoed
by the Governor. The veto message states in part that AB 1082
(Calderon) "duplicates existing PUC procedures that allows 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."
Analysis Prepared by : Paul Donahue / U. & C. / (916) 319-2083
FN: 0004658