2. Background
2.1. History of the Competitive Bidding Rule
On January 15, 1946, the Commission issued Decision (D.) 38614 in response to its investigation into whether public utilities should be required to sell their debt and equity securities through a competitive bidding process.1 During the mid 1940s, the issuance of utility debt securities was transitioning from a negotiated basis to a competitive bidding basis. Testimony in that proceeding substantiated that while negotiated bids in extraordinary circumstances can be favorable, the public interest is best served when more than one investment banker is offered an opportunity to underwrite securities. Therefore, the Commission established a Competitive Bidding Rule (CBR) for utilities issuing new securities, with certain exemptions. Since this CBR was established in 1946 it has been amended five times.2 The period between reviews has ranged from four to 25 years and averaged 13 years.
The CBR was last amended by a Commission vote on October 1, 1986 in Resolution F-616. Since that time, the Commission has authorized individual utilities to deviate from the CBR so that the utilities could take advantage of market opportunities.3
Utilities have also requested authority to enter into debt enhancement arrangements in order to improve the terms and conditions of new issuances of debt securities and to lower the overall cost of money for the benefit of ratepayers. In particular, utilities have requested debt enhancements such as: put options, call options, sinking funds, swaptions, caps, collars, currency swaps, credit enhancements, capital replacement, interest deferral, special-purpose entity transactions, delayed drawdown, hedging strategies, treasury locks, various types of treasury options, various types of interest rate swaps, and long hedges. A Glossary of Selected Financing Terms is attached as Attachment C to this decision.
2.2. Procedural Matters
Order Instituting Rulemaking (R.) 11-03-007, was issued on March 10, 2011, in order to address concerns regarding the CBR and General Order (GO) 24-B. On May 6, 9, and 10, 2011, Opening Comments were filed by: Castle Oak Securities; L.P.; jointly by Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), Southern California Edison Company (SCE), and Southern California Gas Company (SoCal Gas),4 PacifiCorp; Southwest Gas Corporation (Southwest Gas) The Greenlining Institute; California Pacific Electric Company, LLC; RBS Global Banking and Markets; jointly by MCE Metro Access Transmission Services LLC and Verizon California Inc.; California Water Association and its Class A Water Company Members (CWA and Class A water); California Association of Competitive Telecommunications Companies (CALTEL); Jointly by the Small Local Exchange Carriers (LECs);5 jointly by AT&T Communications of California, Inc., AT&T Corp, Pacific Bell Telephone Company, TCG Los Angeles, Inc., TCG San Diego, and TCG San Francisco (AT&T); SureWest Telephone, Southwest Gas; the Williams Capital Group, L.P., Loop Capital Markets LLC, and Samuel A. Ramirez & Company, Inc. Reply Comments were filed on May 17 and 27, 2011, by Aladdin Capital LLC; The Greenlining Institute; Southwest Gas; the Joint Energy Utilities; and the Small LECs.
A prehearing conference (PHC) was held in San Francisco on October 4, 2011 to establish the service list for this proceeding and develop a procedural timetable. On October 14, 2011, the assigned Administrative Law Judge (ALJ) issued a ruling via electronic mail (e-mail), set January 9 and 10, 2012 as dates for a workshop to discuss the issues in this proceeding, stated that Pre-Workshop Statements were due January 4, 2012, and provided a list of questions to guide the discussions. On November 15, 2011, the assigned Commissioner and ALJ issued a Revised Scoping Memo and Ruling of the Assigned Commissioner and Administrative Law Judge, which confirmed the assigned ALJ's October 14, 2011 ruling and set a schedule for the balance of this proceeding. On November 28, 2011, the assigned ALJ issued a ruling via e-mail, adding issues for discussion in the Pre-Workshop Statements and at the workshop, and set an evidentiary hearing for the afternoon of January 10, 2012. This was confirmed by formal ruling on December 15, 2012. Evidentiary hearings were not necessary. The January 10, 2012 ruling also included a draft revised CBR for parties to use as a platform for discussion of specific changes to the CBR.
Pre-Workshop Statements were filed by CWA and Class A water, CALTEL, jointly by AT&T, Verizon, and SureWest, PacifiCorp, Joint Energy Utilities, Southwest Gas, and the Small LECs. A workshop was held on January 9, 2012, in which parties discussed opinions and alternatives to the CBR, and other concerns regarding revisions to the CBR, GO 156, GO 24-B, and debt enhancements. A Workshop Report, written by the Joint Energy Utilities, was filed on January 20, 2012. On February 2, 2012, Small LECs filed comments to the Workshop Report. On February 3, 2012, comments to the Workshop Report were filed by CALTEL, CWA and Class A water, the Joint Energy Utilities, PacifiCorp, and jointly by AT&T, Verizon, and SureWest. Parties that filed comments are supportive of the Workshop Report, as well as the rule and GO proposed by the Joint Energy Utilities, but each party also provided minor revisions to the text of the report as well as the rule and GO, which we have considered in our order herein.
A glossary of terms is attached to this decision as Attachment C for reference purposes only. Attachment C is not a part of the new Financing Rule or GO.
1 46 RRC 281-290 (1946).
2 Amendments were adopted by D.49941 in 1954, D.75556 in 1969, D.81908 in 1973, and Resolution Numbers F-591 in 1981 and F-616 in 1986.
3 For example, see D.10-08-002 (2010), D.09-09-046 (2009), D.08-10-013 (2008), D.07-08-012 (2007), D.06-07-012 (2006), D.05-08-008 (2005), D.04-10-037 (2004), and D.03-07-008 (2003).
4 PG&E, SDG&E, SCE, and SoCal Gas are collectively referred to as "Joint Energy Utilities" for the remainder of this decision.
5 The Small LECs includes Cal-Ore Telephone Co., Calaveras Telephone Co., Calaveras Telephone Company, Ducor Telephone Company, Foresthill Telephone Co., Happy Valley Telephone Company, Hornitos Telephone Company, Kerman Telephone Company, Pinnacles Telephone Co., and Sierra Telephone Company, Inc., The Ponderosa Telephone Co., The Siskiyou Telephone Company, Volcano Telephone Company, and Winterhaven Telephone Company.
