BILL ANALYSIS
AB 2669
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2669 (Maldonado)
As Amended August 7, 2002
Majority vote
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|ASSEMBLY: |69-0 |(May 13, 2002) |SENATE: |33-2 |(August 27, |
| | | | | |2002) |
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Original Committee Reference: U. & C.
SUMMARY : Permits telephone companies that are regulated under a
new regulatory framework 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.
The Senate amendments :
Modify the category of telephone companies authorized to issue
stock or debt from those regulated under a price cap structure
to those regulated under a new regulatory framework structure
that utilizes a price cap index or price adjustment formula.
The modification essentially clarifies the bill's applicability
to the same class of companies.
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.
AS PASSED BY THE ASSEMBLY , 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
AB 2669
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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.
FISCAL EFFECT : Potential savings to PUC from avoided reviews of
company financing transactions.
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.
Proponents 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 inept business decisions. Thus, proponents believe
that a company has every incentive to seek the lowest possible
financing because it can no longer pass on any excess costs to
ratepayers.
Proponents contend that continued PUC pre-approval disadvantages
companies seeking to take advantage of favorable market
opportunities.
AB 2669
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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 the bill
"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: 0007555