BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN AB 1389 - Ridley-Thomas Hearing Date: July 8, 2003 A As Proposed to be Amended FISCAL B 1 3 8 9 DESCRIPTION Current law defines public utilities as common carriers, telephone corporations, electric corporations, gas corporations, and water corporations. Current law requires every public utility to furnish and maintain such service as is necessary to promote the safety, health, comfort, and convenience of its patrons, employees, and the public. This bill finds that: 1.Public utilities serve a vital function, providing basic infrastructure essential to the efficient conduct of commerce and societal interaction; 2.In exchange for the grant of public utility status, those utilities bear a heightened responsibility for contributing to the public interest, including consideration of the benefits benefits of public utility employment to the state and its residents; 3.It is proper state policy to encourage the employment of Californians by California's public utilities. This bill requires the California Public Utilities Commission (CPUC) to annually report to the policy committees of the Senate and Assembly, and to make publicly available through the Internet, information for each public utility showing: 1.The number of customers served in California; 2.The percentage of customers residing in California; 3.The number of California residents employed, including those employed by contractors; 4.The percentage of each company's workforce that lives in California; 5.The capital investment for the year. BACKGROUND Every public utility is subject to the jurisdiction of the CPUC, subject to preemption by federal law or exemption by state statute. The regulatory bargain has historically been one where the government grants an exclusive franchise to a utility in exchange for the utility agreeing to have its profits limited, to meet service quality standards, and to serve all qualified customers. The concern over utility employment started in the telecommunications industry as telephone companies, which are public utilities, grew into multi-state operations. Not surprisingly, this growth has provided opportunities for companies to lower costs through economies of scale. Telephone companies have sought to lower their costs by consolidating activities, such as call centers and operator service centers, and moving them to other states and other countries. COMMENTS 1.California Guarantees You Customers, So . . . . The basis for this bill appears to be that because public utilities benefit from being designated as such, they should be required to publicly report on how many Californians they employ, how they're investing in California, and much more. This rationale is strongest with regard to traditional utilities where regulation has either barred competitors or given the public utilities a particular advantage, such as local telephone companies like SBC and Verizon. This policy basis is less sound for public utilities where public utility status hasn't given them the traditional advantages, such as cellular telephone service. However, there remains the argument that the state should encourage support for businesses that employ Californians, and under that basis the inclusion of non-traditional public utilities may be reasonable, particularly when the requirement of this bill is merely to publicly report on a companies capital investment, employment practices, and customers. 2.A Balancing Act . The balancing act between wages and prices has always been and will always be a difficult, inexact science. Customers like low prices, but presumably those same customers would like to enjoy high wages in their jobs. The extent to which wages and salaries affect the price of goods and services no doubt varies by company and by industry. Earlier versions of this legislation called on the state, when exercising its proprietary role as a purchaser of goods and services from public utilities, to act to promote the employment of California residents. That provision is no longer in the bill. 3.Proprietary Information . This bill requires specific information be reported to the Legislature regarding each utilities' employment, customer, and investment numbers and practices. Whether this information is proprietary and/or contains trade secret information is an open question, though because the information required is of such a very general nature (e.g. number of customers in California, total dollars invested in California in a particular year), it's hard to see how such information could be useful to competitors. Much more sensitive information than that required by this bill, such as a company's gross profit margin, is currently publicly available. For example, the federal Securities and Exchange Commission has promulgated Regulation FD to require much more public dissemination of material financial information provided to securities analysts. 4.What About Small-Market Or One-Market Companies? Some small market utilities are concerned that because they are so small and offer service in such limited areas, the information the CPUC is required to release about them will be very useful to the large public utilities with which they compete. The author and committee may wish to consider amending the bill to eliminate utilities of a certain size or structure from the provisions of this measure. 5.How Is The CPUC Supposed To Get This Information? The bill requires the CPUC to report information on the number of customers each utility serves, the percentage of customers residing in California, the percentage of each company's workforce that lives in California, etc. However, the bill doesn't require the affected utilities to provide this information to the CPUC. Is the CPUC supposed to be responsible for determining how many customers and employees each company may have throughout the U.S., or would it be more efficient to require the public utilities to provide this information to the CPUC. The author and committee may wish to consider clarifying this issue in the bill. Furthermore, the author and committee may wish to consider how the issue of sister and subsidiary companies should be addressed, how regulated and unregulated entities of the same company are treated, and whether the bill's limitation to "domestic" employees and "domestic" customers will provide an incomplete picture of a company's activities. 6.Haven't We Met Before? The question of whether California should encourage the employment of Californians by public utilities has been broached several times over the years, though past efforts have been narrowly focused on local telephone service. The Assembly passed HR 92 (Goldberg) in 2002, resolving that a) it's proper state policy to encourage employment of Californians, and discourage employment of non-Californians, by California telephone corporations, and b) it's the preference of the state of California, consistent with the Constitution, that tasks necessary for rendering local telephone service be performed by Californians. Last year, the Governor issued Executive Order D-64-02 which instructed state agencies to give preference to retaining contracts with California companies. The Governor vetoed AB 1658 (Napolitano) in 1993, which sought to establish California policy that, consistent with the Constitution, the tasks necessary for rendering local telephone service to Californians be performed by Californians. That same year, the Legislature passed SCR 11 (Rosenthal) which resolved that local telephone companies should be encouraged to maintain and stimulate a larger permanent labor force in California. The resolution further urged the CPUC to consider the impact on the state's workforce when determining levels of earnings for local telephone companies and when evaluating any mergers, divestitures, or other significant changes in control of those companies. ASSEMBLY VOTES Assembly Floor (46-30) Assembly Appropriations Committee (17-7) Assembly Utilities and Commerce Committee (9-4) POSITIONS Sponsor: Communication Workers of America Support: California Coalition of Utility Employees California Conference Board of the Amalgamated Transit Union California Conference of Machinists California Labor and Telecommunications Coalition Engineers and Scientists of California, Local 20, IFPTE, AFL-CIO Hotel Employees & Restaurant Employees International Union Professional and Technical Engineers, Local 21, IFPTE, AFL-CIO Teamsters United Food & Commercial Workers Region 8 States Council Oppose: AT&T California Association of Competitive Telecommunications Companies California Cable & Telecommunications Association Cellular Telecommunications & Internet Association MCI Worldcom Pac West Telecomm, Inc. Sprint Randy Chinn AB 1389 Analysis Hearing Date: July 8, 2003