The Future of LifeLine Telephone Service

							    CCPUC Annual Meeting
Commission Policy and Wall Street


          Bill Nusbaum
        Managing Attorney
               TURN
         October 5, 2009
Extremely challenging environment

 • Investment needs are large with many new requirements,
   especially in energy
    – Energy efficiency; aggressive renewables
      requirements; smart grid; carbon reduction
    – Brattle Group Nov. 2008 report estimates overall
      industry capital investment requirements through
      2030 at approximately $1.5 to $2 Trillion, with the
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      western region ranging between $89 and $189 Billion

 • In telecom – fiber investments, especially for video; 4G
   wireless networks; “broadband for all”
    – USTelecom estimates that carriers are investing $60
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       Billion a year
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Extremely challenging environment

 • Recession is reducing demand

 • Financial crisis resulting in tight credit and higher cost of
   credit

 • Only 30% of the energy industry companies have a rating  3
   of A or better – average rating for IOUs is in Baa range

 • In many states, regulators are continuing to allow lower
   energy company returns and rates than requested
    – Edison Electric Institute: the average ROE in 2008 rate
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      cases was 10.34%




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Key messages being sent to CPUC

 • Need for “clear and supportive” regulation
    – Stable revenues, earnings and cash flows
    – “Utilities and regulators must keep financial
      community trust to attract capital at lowest cost to
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      customers.”

 •   “Adequate” ROE is critical to attract capital

 • In telecom, constant refrain is: any regulation has a
   chilling effect on investment with spill-over impacts on
   infrastructure, job creation, valuation and stock price



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CPUC response – minimize risk for
energy utilities
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 • Higher than average ROEs for investor owned utilities
    – PG&E 11.35%
    – SDG&E 11.1%
    – SCE 11.5%

 • Earnings predictability
    – Decoupling
    – Shareholder incentives for EE
    – Balancing accounts

 • Procurement cost protection – AB 57 (P.U. Code §454.5)

 • No subsequent prudency review for large capital
   investments so long as the utility does not exceed the
   forecast amount
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CPUC response in telecom -
deregulate
 • The assumption of “vibrant” competition has led to
   almost total deregulation

 • Tremendous resistance to any “new” rules that might
   “deter network investment”
    – Example: copper retirements rules




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Ratepayer concerns
 • Is the CPUC too generous?
    – PG&E, Edison and Sempra have all been rated
       investment grade with comments from rating agencies
       such as “reasonable/balanced regulatory
       environment” (Fitch); “solid regulatory paradigm”
       (S&P)
    – Sanford Bernstein analyst Hugh Wynne has called
       Southern California Edison "perhaps the fastest-
       growing, most favorably regulated electric utility in the
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       United States.”

 • Is there an over-reliance on credit ratings?

 • “The Street” doesn’t always get it right. How much weight
   should the CPUC give to investors’ perspectives?


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Ratepayer concerns

 • Are ROEs too high? Has the balance of risk been shifted
   too far to ratepayers?

 • Are all the investments necessary and provide tangible
   benefits to consumers?

 • Will telecom deregulation actually benefit consumers?

 • Who benefits from broadband infrastructure investment
   and where?




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Sources
 1. The Brattle Group “Transforming America’s Power
    Industry: The Investment Challenge 2010 – 1030,
    November 2008
 2. USTelcom ex parte presentation to the FCC re National
    Broadband Plan, GN Docket 09-51, September 3, 2009
 3. Edison Electric Institute, “2008 Financial Review, Annual
    Report of the U.S. Shareholder-Owned Electric Utility
    Industry”
 4. Moody’s Investors Service, Florida Municipal Electric
    Association-Florida Municipal Power Agency Annual
    Conference – “The Financial Outlook for Public Power
    Utilities”, July 16, 2009, Dan Aschenbach
 5. Robert Boada, VP & Treasurer, Southern CA Edison
    presentation to NARUC July 21, 2009
 6. D.07-12-049
 7. Barron’s “Boring Beauties With Powerhouse Yields”
    Sept. 14, 2009
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