BILL NUMBER: AB 2898 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Pescetti
FEBRUARY 25, 2002
An act to add and repeal Article 1.5 (commencing with Section
2880) of Part 2 of Division 1 of the Public Utilities Code, relating
to telephone corporations.
LEGISLATIVE COUNSEL'S DIGEST
AB 2898, as introduced, Pescetti. Telephone corporations: New
Regulatory Framework.
(1) Under existing law, the Public Utilities Commission has
regulatory authority over public utilities, including telephone
corporations, and authorizes the commission to establish just and
reasonable rates. Under that authority, the commission has adopted
decisions adopting an incentive-based regulatory framework called the
New Regulatory Framework.
This bill would require, up until January 1, 2007, that the
commission (1) suspend the use of a price-cap index mechanism, and
(2) suspend use of an earnings-sharing mechanism for those telephone
corporations regulated under the New Regulatory Framework.
Because a violation of an order of the commission is a crime under
existing law, the bill would impose a state-mandated local program
by creating a new crime.
(2) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) For many decades, telephone corporations were regulated solely
under cost of service, or rate of return, regulation, under which
the California Public Utilities Commission set rates based on a
review of each utility's costs, investments, necessary return and
corresponding revenue requirement needs. The commission has replaced
cost-of-service regulation for four incumbent local exchange
carriers, two upon the commission's investigation and rulemaking and
two upon application by the utilities, with an incentive-based
regulation known as the New Regulatory Framework.
(b) The New Regulatory Framework combines financial incentives,
streamlined regulation, safeguards for corporate shareholders and
ratepayers, and commission monitoring through triennial reviews.
(c) The goals for the New Regulatory Framework are: (1) universal
service; (2) economic efficiency; (3) technological advance; (4)
financial rate stability; (5) full utilization of the local exchange
network; (6) avoidance of cross subsidies and anticompetitive
behavior; and (7) low-cost, efficient regulation.
(d) Under the original New Regulatory Framework, rates were based
on the prior year's rates, adjusted annually for inflation as
measured by the gross national product price index, productivity, and
exogenous adjustments found reasonable and necessary by the
commission. Services were classified into three categories. Basic
monopoly services were classified as Category 1 services.
Discretionary or partially competitive services were classified as
Category 2 services. Fully competitive services were classified as
Category 3 services.
(e) Under the original New Regulatory Framework, prices for basic
monopoly services (Category 1) and price ceilings for discretionary
and partially competitive services (Category 2) were revised annually
in accordance with a "price-cap index" equal to inflation less
productivity. In Decision 95-12-052, the commission set the
productivity factor in the price adjustment formula equal to the
inflation factor. The act of setting the productivity factor equal
to the inflation factor operated as a suspension of the price
adjustment formula. This had the effect of capping prices for
Category 1 services, and capping the price ceiling for Category 2
services, except for the exogenous adjustments found reasonable and
necessary by the commission. In Decisions 96-12-054, 96-12-074,
98-10-026, 00-03-040, and 01-06-077 the commission suspended, and
continued the suspension of, the price-cap index. Decision 98-10-026
declared its expectation that the price-cap index would be
eliminated in the next New Regulatory Framework triennial review. In
Rulemaking 01-09-001, the commission is considering whether to
reinstate the price-cap index mechanism, continue the suspension of
the mechanism, or to eliminate the price-cap mechanism altogether.
(f) The original New Regulatory Framework included an
earnings-sharing mechanism that included a market-based rate of
return, a benchmark rate of return, a ceiling rate of return, and a
floor rate of return. The telephone corporations retained 100
percent of earnings up to the benchmark rate of return and either
shared or returned earnings over the benchmark and ceiling rates with
ratepayers. In Decision 98-10-026, the commission suspended the
earnings sharing mechanism for Pacific Bell Telephone Company and GTE
California Incorporated, now known as Verizon California
Incorporated. Decision 98-10-026 declared its expectation that the
sharing mechanism would be eliminated in the next New Regulatory
Framework triennial review. In Decisions 01-06-077 and 01-12-024,
the commission ordered the retention of Roseville Telephone Company's
sharing mechanism. In Decision 00-03-040, the commission approved a
settlement agreement between Citizens Telecommunications Company of
California, Inc. and the commission's Office of Ratepayer Advocates,
that ordered the retention of a sharing mechanism. In Rulemaking
01-09-001, the commission is considering whether to eliminate the
sharing mechanism, continue the suspension of the sharing mechanism,
or to reinstate the sharing mechanism.
(g) The telecommunications industry is in a state of transition,
with a convergence of technology and increasing competition. The
commission's New Regulatory Framework has allowed consumers to
benefit from low, stable prices, as well as from the fast deployment
of important new technologies, including modernized networks,
deployment of fiber optics, advanced switches, and an abundance of
convenience features. The New Regulatory Framework has resulted in
billions of dollars in investment and the creation of thousands of
new jobs for the California economy. Maintaining the investment
incentives created by the commission's New Regulatory Framework,
while at the same time protecting consumers and promoting
competition, is vital to the state's economy.
(h) The New Regulatory Framework's incentive-based regulation has
proven to be the most effective regulatory means to increase
efficiency and reduce cost in the telecommunications market.
(i) Telephone corporations regulated under the New Regulatory
Framework's incentive-based or price-cap mechanism require
predictability with respect to the provisions of the New Regulatory
Framework that will apply to them.
(j) It is the intent of the Legislature to maintain the progress
created by the commission's New Regulatory Framework, which includes
the creation of an atmosphere in which telephone corporations have
incentives to operate efficiently, introduce new products, and
provide better service.
SEC. 2. Article 1.5 (commencing with Section 2880) is added to
Part 2 of Division 1 of the Public Utilities Code, to read:
Article 1.5. New Regulatory Framework
2880. (a) Any price-cap index mechanism whereby inflation is
adjusted by a productivity factor, and its related components and
elements, previously suspended by the commission in regulating a
telephone corporation under the New Regulatory Framework, shall be
suspended from use with respect to that telephone corporation, until
January 1, 2007. Nothing in this section shall impair the commission'
s power to eliminate the price-cap index mechanism from its New
Regulatory Framework, for any telephone corporation. Nothing in this
section shall impair the commission's power to retain or suspend the
price-cap index mechanism for its New Regulatory Framework, for
telephone corporations where the commission has not previously
suspended their use for that corporation.
(b) Any sharing mechanism, and its related components and
elements, shall be suspended from use with respect to telephone
corporations regulated under the New Regulatory Framework, until
January 1, 2007. Nothing in this section shall impair the commission'
s power to eliminate the sharing mechanism from its New Regulatory
Framework, for any telephone corporation. Nothing in this section
shall impair the commission's power to retain or suspend the sharing
mechanism from its New Regulatory Framework, for telephone
corporations not previously regulated under the New Regulatory
Framework.
(c) Nothing in this section shall impair the commission's power to
regulate rates and charges, price ceilings and price floors for
services of telephone corporations subject to its jurisdiction, or to
impair the commission's power to reclassify services to a different
pricing category under the New Regulatory Framework, except as
provided in subdivisions (a) and (b).
(d) Nothing in this section shall impair the commission's power to
regulate the quality of service provided by telephone corporations
subject to its jurisdiction.
(e) This section shall apply to each telephone corporation
regulated pursuant to the New Regulatory Framework.
(f) This section shall remain in effect only until January 1,
2007, and as of that date is repealed, unless a later enacted
statute, which is chaptered before January 1, 2007, deletes or
extends that date.
SEC. 3. No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB of the California Constitution because the
only costs that may be incurred by a local agency or school district
will be incurred because this act creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a crime
or infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.