BILL ANALYSIS AB 1082 Page 1 Date of Hearing: July 6, 2000 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Roderick Wright, Chair AB 1082 (Calderon) - As Amended: June 20, 2000 SUBJECT : Public utilities: stocks and security transactions. SUMMARY : Permits telephone corporations that are regulated under a "price cap" regulatory structure to issue stock or debt unless the California Public Utilities Commission (CPUC) determines that such an issuance is not in the public interest. Specifically, this bill : 1)Authorizes CPUC to exempt a telephone corporation that is regulated under a price-cap regulatory structure from specified stock and security transaction provisions, unless the corporation: a) Secures the financing by pledging a plant or assets; and b) CPUC determines that such an issuance is not in the public interest. 1)Provides that these provisions shall continue to apply to any telephone corporation that is also an electric or gas corporation, as defined. 1)States legislative intent that these provisions shall not hinder CPUC's existing authority to disallow imprudent expenses or capital expenditures of the utilities under its jurisdiction, or CPUC's authority to impute a capital structure or cost of capital for utilities under its jurisdiction. EXISTING LAW 1)Authorizes CPUC to regulate decisions governing stock and security transactions of any public utility if CPUC finds it is required by the public interest. 1)Authorizes CPUC to exempt any public utility or class of public utility from its regulations relating to stock and security transactions if it finds that their application does not impact the public interest. AB 1082 Page 2 FISCAL EFFECT : Unknown. COMMENTS : In 1951, CPUC was granted the legal oversight of regulated utilities' ability to obtain short and long-term capital financing. In the monopoly environment, utility rates were set basing them on the cost of providing service, plus a reasonable return on the utility's investment - a process known as "cost-of-service" ratemaking. Under that scheme, cost recovery was virtually guaranteed for the monopoly telephone companies. The telecommunications industry has undergone significant changes since the initial grant of CPUC oversight authority. Today, the ratesetting process for Pacific Bell and GTE California (GTE) uses an incentive-based price-cap in which shareholders bear the entire risk of the operations and financial decisions of the company, and customers are shielded from poor financing decisions of the utilities management. This bill delegates the responsibility for making sound decisions to management. GTE, the sponsor of this bill, indicates that they have had to forego opportunities to obtain more favorable financing terms because the current CPUC oversight process takes a minimum of three months to complete. The California Telephone Association asserts that by giving CPUC the ability to exempt the state's largest local exchange carriers from onerous review and approval of utility financing delegates greater responsibility on the management of those carriers. REGISTERED SUPPORT / OPPOSITION : Support California Telephone Association Office Ratepayer Advocates Pacific Bell Opposition None on file. Analysis Prepared by : Carolyn Veal-Hunter / U. & C. / (916) AB 1082 Page 3 319-2083