BILL ANALYSIS
AB 2505
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Date of Hearing: April 14, 2004
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Judy Chu, Chair
AB 2505 (Maldonado) - As Introduced: February 19, 2004
Policy Committee:
UtilitiesVote:12-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill permits telephone companies that are regulated under a
"price cap" regulatory structure to issue stock or debt without
Public Utilities Commission (PUC) approval, as long as the
company does not pledge a plant or assets to secure the
financing, or unless the commission determines that its approval
of the financing would be in the public interest.
FISCAL EFFECT
Potential minor savings to the PUC from avoided reviews of
company financing transactions.
(Current law authorizes the PUC to review and approve stock and
security transactions of public utilities and allows the PUC to
waive review and approval if it finds that it is in the public
interest to do so.)
COMMENTS
1)Background . Historically, telephone companies were regulated
under a rate-of-return framework. In response to changing
industry conditions, the 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 that
focused on the prices telephone companies may charge for
various services rather than a company's costs or profits.
Verizon, the sponsor of AB 2505, contends that continued
"pre-approval" of financing transactions is unnecessary under
AB 2505
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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 it has an incentive to
seek the lowest possible financing because it cannot pass on
any excess costs to ratepayers. Verizon contends that
continued PUC pre-approval has disadvantaged the company
because the timeframes involved in taking advantage of
favorable financing opportunities are very short, and the
PUC's approval can take several months.
2)Prior Legislation . This bill is essentially identical to AB
2669 (Calderon) of 2002 and AB 1082 (Calderon) of 2000, both
of which were vetoed by Governor Davis. The veto messages in
part stated those bills duplicated existing PUC procedures
allowing the commission to exempt telephone companies on a
case-by-case basis from regulatory review of their financing
proposals. The governor also argued that the measures placed
ratepayers at risk if local telephone companies make bad
financial decisions and must then seek additional revenue to
offset their losses.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081