BILL ANALYSIS
AB 736
Page 1
Date of Hearing: April 25, 2005
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
AB 736 (Horton) - As Amended: April 12, 2005
SUBJECT : Public utilities: regulation.
SUMMARY : This bill modifies the California Public Utilities
Commission (PUC) approval process for public utilities to sell,
lease or otherwise transfer a property or any part of a property
if the property is necessary for the performance of its duties
to the public and also exempts certain public utilities from
this process. Specifically, this bill :
1)Prohibits, with certain exceptions, any public utility from
selling, leasing, assigning, mortgaging or disposing or
encumbering the whole or any part of a property without first
filing an advice letter and obtaining a resolution from the
California Public Utilities Commission (PUC).
2)Requires the PUC to approve the advice letter within 120 days
of its filing absent a protest or incomplete documentation by
the applicant public utility.
3)Exempts any public utility from the provisions of Public
Utilities Code Section 851 if the public utility has been
authorized by the PUC to charge market-based rates.
4)Exempts a public utility from having to obtain authorization
from the PUC before merging or otherwise consolidating with a
subsidiary, an affiliate, or a corporation if certain
conditions are met.
EXISTING LAW
1)Requires any public utility, except for a common carrier by
railroad, to obtain an order from the PUC before selling,
leasing, assigning, mortgaging, other otherwise disposing of
any property that is necessary or useful in the performance of
its duties to the public.
2)Permits the sale or disposition by a public utility of any
property that is not necessary or useful in the performance of
its duties to the public and presumes, with certain
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exceptions, that such dispositions are not useful or necessary
in the performance of its duties to the public.
3)Provides a mechanism for the PUC to exempt any public utility
or class of public utility from the requirements of this code
section and establish rules or requirements for those public
utilities exempted.
4)Prohibits, with certain exceptions, a public utility and a
subsidiary, an affiliate, or a corporation holding a
controlling interest in a public utility, from acquiring,
taking or holding any part of the capital stock of any other
public utility without first having obtained authorization
from the PUC.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author the purpose of this bill is
to help streamline an unduly lengthy process at the PUC to
handle non-controversial asset sales, transfers, leases or other
encumbrances of utility property. By reducing workload at the
PUC, the author argues that this bill should reduce
administrative costs of both the PUC and public utilities and
could save ratepayer dollars through reduced utility operating
costs.
1)Section 851 approval process: Public Utilities Code Section
851 requires any public utility,
except for a common carrier by railroad, to undergo a full
proceeding at the PUC before selling, leasing, assigning,
mortgaging, other otherwise disposing of any property that is
necessary or useful in the performance of its duties to the
public. As a formal proceeding, a Section 851 application
results in significant costs for the applicant, other parties
and takes up to 18 months to complete.
This bill would address these concerns by modifying the approval
process to require public utilities to file an advice letter
with the PUC and to obtain an authorizing resolution from the
PUC rather than undergoing a full proceeding. The advice letter
process is less formal than a full proceeding and can be
completed in less time. It requires a party to submit a letter
seeking PUC permission for a specified action. The request is
then reviewed and approved at the staff level. This bill
requires the PUC to approve the advice letter within 120 days of
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its filing absent protest or incomplete documentation. The
standard for approving advice letters required under this bill
appears to be different than current practice at the PUC and may
not provide for sufficient review by PUC staff. The committee
and author may wish to harmonize the advice letter approval
standard in this bill with current practice at the PUC.
2)PUC Pilot Program: The Administrative Law Judge (ALJ)
Division of the PUC is currently
proposing an advice letter pilot program for Section 851
transactions similar to AB 736. The proposed PUC advice letter
program requires the filing of an advice letter which triggers a
30-day review period by staff. The advice letter becomes
effective at end of 30 days unless staff suspends its
implementation for an additional 120 days (or longer if the
utility agrees). At the end of the 150-day period the PUC must
issue a decision.
3)Existing PUC authority: Existing law provides a mechanism for
the PUC to exempt any
public utility or class of public utility from the requirements
of this code section and establish rules or requirements for
those public utilities exempted. However, the PUC has not acted
to exempt any public utilities from this process despite the
concerns raised by supporters of this bill.
4)Market-based rate exemption: This bill exempts any public
utility from the provisions of
Public Utilities Code section 851 if the public utility has been
authorized by the commission to charge market-based rates. The
practical application of this language is to exempt wireless
telecommunications providers as well as two companies that
operate natural gas storage facilities in Northern California.
The proponents of this provision argue that utilities that
charge market based rates are not guaranteed full recovery from
ratepayers of their operating costs, and instead bare the full
risk of any investment. Since these utilities bare all the risks
of their investments, the proponents of this bill believe that
there is no risk to ratepayers if assets are sold and thus there
is no need for the PUC to approve the sale of assets.
This argument however minimizes the fact that in order to obtain
the benefits of operating as a public utility in California, a
company must petition the PUC to make a determination that its
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project would be a public necessity. The company is then
allowed to invest in physical plants that can then become a
critical part of our energy or telecommunications
infrastructure. If there is a determination at the front end
that the a company or project should be a public utility and
that utility is then allowed to become a central piece of the
state's infrastructure, it may not be wise to allow companies to
later sell the project without a determination that the project
is no longer a public need. The author and committee may wish
to consider deleting the market-based rate exemption provisions
from the bill.
5)Additional Exemption: The bill also exempts public utilities
undergoing mergers,
partnerships and other ownership transfers from the requirements
of this section if there is no change in ownership of any of the
shares of the capital stock of the public utility and if
following the ownership transfer, the beneficial owner of the
public utility continues to hold greater than 50 percent of the
ownership interest in any subsidiary or affiliated entity that
is a direct or indirect owner of the public utility. According
to the author this ensures that the PUC retains its existing
authority to review and approve any sale, merger or transfer of
the public utility itself, or any transaction that results in a
change in ownership or control of the parent or holding company
which is the ultimate owner of the utility.
REGISTERED SUPPORT / OPPOSITION :
Support
California Telephone Association's Independent Company Group
(Sponsor)
Global Valley Networks, Inc.
Kerman Telephone
Sierra Telephone
Surewest
TDS Telecom
Wild Goose Storage, Inc.
Opposition
None on file.
Analysis Prepared by : Adam Hunt / U. & C. / (916) 319-2083
AB 736
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