BILL ANALYSIS
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THIRD READING
Bill No: AB 2669
Author: Maldonado (R)
Amended: 8/7/02 in Senate
Vote: 21
SENATE ENERGY, U.&C. COMMITTEE : 5-0, 6/11/02
AYES: Bowen, Morrow, Alarcon, Battin, Murray
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 69-0, 5/13/02 - See last page for vote
SUBJECT : Public utilities: stocks and security
transactions
SOURCE : Verizon
DIGEST : This bill permits telephone companies that are
regulated under a specified regulatory structure to issue
stock or debt unless the State Public Utilities commission
can prove that the stock issuance would not be in the
public interest.
ANALYSIS : Current law requires a utility that wants to
issue stock or debt to obtain prior approval from the
State Public Utilities Commission (PUC). The PUC may waive
this requirement if it finds doing so is in the public
interest.
This bill exempts most large telephone corporations from
the prior approval requirement for the issuance of stock or
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debt. The PUC may re-impose the requirement if it finds
doing so is 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 new regulatory framework that
utilizes a price-cap index, price adjustment formula, or
substantially similar mechanism established by the PUC,
as long as the company doesn't pledge to plant or assets
to secure the financing.
2.Specifies that the PUC shall continue to approve issuance
of financial instruments for telephone companies that are
also electric or gas public utilities.
3.Allows the PUC to re-impose PUC approval of stock and
bond issuance for telephone companies if the PUC finds,
in a proceeding, that it is required by the public
interest.
Background
Utility rates have historically been based on the cost of
providing the service, plus a reasonable return on the
utility's investment - a process known as "cost-based
ratemaking." The cost of stock or debt is one of many
costs that are factored into that rate setting calculation.
Since 1989, the PUC has altered that ratemaking process for
telephone corporations such as SBC, Verizon, and Roseville
Telephone Company to focus on prices paid by customers
rather than the costs or profits of the telephone company.
Under this approach, prices for telephone services are
categorized in monopoly, discretionary, and competitive
categories. Prices for monopoly services are set, prices
for discretionary services are allowed to vary between
established bands, and prices for competitive services are
allowed to move as the telephone corporation sees fit.
This approach, known as the NRF or New Regulatory
Framework, gives the telephone corporation a benefit when
it can reduce its costs because its profits will go up.
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Conversely, the utility suffers when its costs rise because
it isn't permitted to raise rates. Theoretically, this
price-cap form of ratemaking shields customers from poor
financing decisions that a utility might make because the
increased costs can't be recovered in rates (although if
prices are set below the caps, the utility could raise
prices up to the cap).
In November 1996, Pacific Bell (now SBC) asked the PUC for
broad authority to issue a variety of debt and preferred
stock for up to $1 billion at unspecified interest rates
for unspecified purposes. This request was approved by the
PUC in February 1997 without a hearing after the PUC found
the issuance of such securities wasn't adverse to the
public interest.
In April 2001, Verizon asked the PUC to exempt it from a
number of regulations regarding the issuance of stock or
debt, including the requirement for prior approval. The
PUC denied that request. However, the PUC did grant
Verizon an exemption from the PUC's competitive bidding
rule requiring that debt issuances be subject to
competitive bid. This exemption was granted because
Verizon was able to demonstrate the exemption enabled it to
issue debt on advantageous terms.
Related Legislation
This bill is similar to AB 1082 (Calderon), which passed
the Legislature in 2000, but was vetoed by the Governor.
The veto messages states, in part, that AB 1082 "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."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/5/02)
Verizon (source)
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SBC Pacific Bell
OPPOSITION : (Verified 8/5/02)
California Public Utilities Commission
Office of Ratepayer Advocates
ASSEMBLY FLOOR :
AYES: Aanestad, Alquist, Aroner, Ashburn, Bates, Bogh,
Briggs, Calderon, Bill Campbell, John Campbell,
Canciamilla, Cardenas, Cardoza, Chan, Chavez, Chu,
Cogdill, Cohn, Corbett, Correa, Cox, Daucher, Diaz,
Dickerson, Dutra, Florez, Frommer, Harman, Havice,
Hollingsworth, Horton, Keeley, Kehoe, Kelley, Koretz, La
Suer, Leonard, Leslie, Longville, Lowenthal, Maddox,
Maldonado, Migden, Mountjoy, Nakano, Negrete McLeod,
Oropeza, Robert Pacheco, Rod Pacheco, Papan, Pavley,
Pescetti, Reyes, Richman, Runner, Salinas, Shelley,
Steinberg, Strickland, Strom-Martin, Vargas, Washington,
Wayne, Wiggins, Wright, Wyland, Wyman, Zettel, Wesson
NC:cm 8/7/02 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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