BILL ANALYSIS
AB 1082
Page 1
GOVERNOR'S VETO
AB 1082 (Calderon)
As Amended June 20, 2000
2/3 vote
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|ASSEMBLY: | |( June 1, 1999 |SENATE: |37-0 |( June 29, |
| | |) | | |2000 ) |
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(vote not relevant)
COMMITTEE VOTE : 10-0 (July 6, 2000) RECOMMENDATION :
concur
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|ASSEMBLY: |72-0 |( August 10, | | | |
| | |2000 ) | | | |
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Original Committee Reference: U. & C.
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.
The Senate amendments delete the Assembly version of this bill,
and instead:
1)Authorize 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
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public interest.
2)Provide that these provisions shall continue to apply to any
telephone corporation that is also an electric or gas
corporations, as defined.
3)State 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 authorizes CPUC to:
1)Regulate decisions governing stock and security transactions
of any public utility, if CPUC finds it is required by the
public interest.
2)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.
AS PASSED BY THE ASSEMBLY , this bill established that CPUC would
be required to allow employee related transition costs made
pursuant to Section 375 of the Public Utilities Code if CPUC
finds those costs to be reasonable.
FISCAL EFFECT : None
COMMENTS : In 1951, CPUC was granted the legal oversight of
regulated utility's 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
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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 on
management parallel to the current regulatory mechanism and
market environment.
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 great responsibility on the
management of those carriers.
GOVERNOR'S VETO MESSAGE :
This measure permits telephone companies that are
regulated under a "price cap" regulatory structure
to issue stock or debt unless the California Public
Utilities Commission (PUC) can prove that such an
issuance would not be in the public interest.
Current law requires telephone companies to obtain
PUC approval before issuing stock or long-term debt
with a maturity date of more than 12 months.
AB 1082 duplicates existing PUC procedures that
allow the PUC to exempt telephone companies on a
case-by-case basis from regulatory review of their
financing proposals.
It also places ratepayers at risk if local
telephone companies make bad financial decisions
and must seek additional forms of revenue to offset
the loses. It is important that local telephone
companies obtain state review before issuing stock
or debt so the public can be protected from
imprudent corporate finance decisions.
AB 1082
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Analysis Prepared by : Joseph Lyons / U. & C. / (916) 319-2083
FN: 0007536