BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN ------------------------------------------------------------ |SB 177 - Peace |Hearing Date:May 11, 1999 | S| |------------------------------+--------------------------+--| |As Amended:April 21, 1999 | | B| |------------------------------+--------------------------+--| | | | | |------------------------------+--------------------------+--| | | | 1| |------------------------------+--------------------------+--| | | | 7| |------------------------------+--------------------------+--| | | | 7| |------------------------------+--------------------------+--| | | | | |------------------------------+--------------------------+--| | | | | ------------------------------------------------------------ DESCRIPTION Current law provides utilities with the authority to use the power of eminent domain to condemn any property necessary to deliver service. This bill bars telephone corporations from condemning property unless that telephone corporation is a carrier of last resort to provide telecommunications services to unserved areas. This bill establishes a process by which a public utility may condemn property for the purpose of competing with another public utility. This process requires a finding by the California Public Utilities Commission (CPUC) that either a) the public utility is providing services as a provider of last resort to unserved areas, or b) the public interest requires the project, the property is necessary for the project, if the property is not acquired the hardship to the public utility outweighs any hardship to the property owners, and the project is located in a manner most compatible with the greatest public good and least amount of private injury. This bill bars a public utility from entering into any exclusive access agreement with any property owner. KEY QUESTIONS 1.Given deregulation and competition, should utilities continue to enjoy the privilege of condemnation? 2.Should the privilege of condemnation be limited in the manner proposed by this bill? BACKGROUND The right of eminent domain was originally codified in 1872 and is defined as the right of the people or government to take private property for public use. This right may only be exercised upon payment of "just compensation" to the private property owner. The right of eminent domain was only permitted to be exercised for specified public uses, including construction of aqueducts, bridges, railroads, pipes, and public transportation, the predecessors of modern utility services. Current law explicitly permits public utilities, including railroads, and electric, gas, water, and telephone utilities (but not cable television corporations) to exercise the power of eminent domain. These statutes have been unchanged since 1975. Analysis by the California Law Revision Commission -- The California Law Revision Commission has been reviewing the authority of public utilities to condemn property and stated the following in a September 1998 recommendation: This authority dates from an era when the numbers of privately owned public utilities were limited, and their operations were superintended by the Public Utilities Commission in a regime of monopoly regulation. Circumstances have changed. Deregulation has occurred in a number of public utility industries, with a corresponding increase in the number of competitors and decrease in Public Utilities Commission oversight. For example, by mid-1998, hundreds of competitors had been issued certificates of public convenience and necessity by the Public Utilities Commission to compete as local telecommunications service providers. Deregulation has been accompanied by complaints of inappropriate exercise or threatened exercise of condemnation power by competitors. While the number of complaints to date are limited, the Law Revision Commission believes that some constraint on unfettered exercise of eminent domain power by a privately owned public utility may be appropriate. (Condemnation by Privately Owned Public Utility, California Law Revision Commission Tentative Recommendation, p. 5 (September 1998).) The Law Revision Commission has issued a tentative recommendation that gives the CPUC the ability to regulate the exercise of condemnation authority as it deems appropriate. Right to condemn is limited and subject to public review, except when condemnation is by utilities -- The right to condemn, or take private property, is one of a number of privileges that utilities enjoy in exchange for assuming certain burdens, such as rate regulation and providing service to all. Other than public entities, the right to take private property is generally limited to utilities and certain quasi-public entities, such as nonprofit educational institutions of collegiate grade and nonprofit hospitals. Before the quasi-public entity can condemn the property, the consent of the local public entity is required. Before the local public entity may authorize the acquisition, it must first find that: 1. The public interest and necessity require the proposed project. 2. The proposed project is planned or located in the manner that will be most compatible with the greatest good and least private injury. 3. The property to be taken is necessary for the proposed project. 4. The hardship to the quasi-public entity if the taking is not permitted outweighs the hardship to the owners of the property. Under current law, when utilities condemn property no public review is required. Despite the relative ease with which utilities may condemn property, the incidence of exercise of condemnation power by utilities has been low, according to the Law Revision Commission. However, the real value in condemnation authority lies as much with its threat as its actual implementation. The transformation of utility service from a tightly controlled monopoly to a much less controlled competitive market argues for a comparable transformation of the historical privileges granted to utilities. Some would argue that because electricity, natural gas, railroad, and telecommunications services remain essential, the unfettered power of condemnation should be retained. However, society considers dozens of other services essential, such as gasoline supply and food, yet privately-owned, for-profit oil companies and farmers have no condemnation powers. Should networks be treated differently? -- There may be a distinction to be made between the part of utility service that requires a continuous physical connection, such as networks of pipelines, electrical wires, and telephone lines, and that which doesn't, such as the siting of a powerplant or a microwave tower. The continuous, physically connected networks are greatly restricted in their flexibility to relocate. However, there are more alternatives in the siting of powerplants or microwave towers. Perhaps this distinction should be recognized in a review of condemnation authority. Public review appropriate? -- Qualifying the right of utilities to exercise eminent domain may also be appropriate, particularly when the utility service is competitive, giving rise to a proliferation of utility companies. While the bill provides the CPUC with the initial authority to approve a condemnation, can the CPUC be a fair arbiter, given that the utilities practice regularly at the CPUC while the owner of the subject property will not have the benefit of that familiarity? The CPUC is also focussed on utility rates, service availability and quality, and spends very little time considering private property owner rights. Given the diminished rationale for utilities in competitive, deregulated businesses to enjoy the condemnation privilege, it might be fairer to have the local public entity authorize the acquisition. Given the relatively few times that utilities exercise their condemnation privilege, this should pose them little hardship. How much? - An owner of condemned property is entitled to compensation based on "fair market value", defined as the value of the highest price that would be agreed to by a willing seller and buyer. When there is no relevant, comparable market, the fair market value is determined by any "just and equitable" method of valuation. COMMENTS 1)This bill was heard in the Senate Judiciary Committee on April 13, 1999 and was approved by a vote of 8-1. That committee analysis is attached. 2)The first part of the bill bars telecommunications companies from condemning property unless it is a carrier of last resort to serve currently unserved areas. Therefore, any company who is a carrier of last resort (i.e. Pacific Bell, GTE) retains the right of condemnation, which can be used in any circumstance. This effectively thwarts the intent of the bill because it continues the right of condemnation for the incumbent local telephone companies (i.e. Pacific Bell, GTE), but eliminates the right of condemnation for competitors (i.e. MediaOne) and long-distance telephone companies (i.e. AT&T, MCIWorldcom). The author and committee may wish to consider making this provision more competitively equitable by authorizing the power to condemn only in the specific projects where a telecommunications company needs to condemn property to provide service as a carrier of last resort to serve currently unserved areas. 3)The second part of the bill establishes a process for evaluating whether a proposed utility condemnation is in the public interest. This bill requires the CPUC to evaluate utility condemnation requests, which may tilt the balance in favor of the utilities, given the utilities familiarity with the CPUC, its statutory direction to ensure the widespread availability of utility services, and its unfamiliarity with local land use planning issues. The criteria for the CPUC to evaluate the utility request is virtually identical to what local entities currently use in evaluating other condemnation requests. The Committee may wish to consider amending the bill to permit local government entities to evaluate the condemnation request, rather than the CPUC, as a way of striking a better balance. This is the process used by all other entities in their condemnation actions. 4)A coalition of telecommunications utilities and cable television companies has offered amendments which delete the bar on the exercise of eminent domain authority by telecommunications companies and streamline the process by which the CPUC would exercise initial review of a utility condemnation proposal. This proposal is not unreasonable, but it's weakness is that it provides inadequate weight to private property interests by making the CPUC the venue for considering whether the condemnation is in the public interest. Section 4 of the bill, commencing on page 4, line 9, deals with telecommunications companies and their efforts to provide exclusive service to all tenants of multi-tenant buildings. While this section bars any future exclusive contracts, it does not bar the enforcement of any existing exclusive contracts. AB 651 (Wright) contains a similar provision and deals with access to multi-tenant buildings by telecommunications service providers in a comprehensive way. POSITIONS Support: City of Benicia Building Owners and Managers Association of California CPUC (Support, if amended) City of Culver City City of Cupertino City of Lakewood City of La Mirada City of Malibu City of Merced City of Oceanside City of Poway San Francisco International Airport City of Thousand Oaks Oppose: California Railroad Industry GTE Office of Ratepayer Advocates (unless amended) Williams Companies, Inc. Randy Chinn SB 177 Analysis Hearing Date: May 11, 1999