Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committees on Commerce, Consumer Protection and Housing and Science, Arts, and Technology, to which was referred H.B. No. 2172, H.D. 2, entitled:

beg leave to report as follows:

The purpose of this measure is to exempt telecommunications carriers from the requirement that public utilities obtain the approval of the Public Utilities Commission (PUC) before issuing securities to finance the acquisition of property or the construction of facilities.

Verizon Hawaii and Time Warner Telecom of Hawaii, L.P., testified in support of this measure. The Consumer Advocate and PUC opposed the measure.

Currently, the law allows a public utility to issue securities to raise long-term financing to acquire property or construct facilities, subject to the PUC's prior review and approval to determine that the proposed acquisition or construction will not have a material adverse effect on the public utility's operations. This review takes into account a utility's capital structure and the effect of the proposed activity upon the carrier's ability to realize a reasonable rate of return on its investment.

This measure exempts telecommunications carriers from the PUC approval requirement, which your Committees find is an expansion of the exemption proposed in the original vehicle for this proposed amendment to section 269-17, Hawaii Revised Statutes. As proposed in H.B. No. 2435 (2004), the exemption applied only to non-facilities based resellers of competitive telecommunications services, and not to other telecommunications carriers. The rationale for this limited exemption was that since non-facilities based carriers do not have facilities that would be affected by the proposed financing, and since the rates of such carriers are affected by market conditions and are therefore, inherently competitive, PUC review was unnecessary and resulted in unnecessary business costs for non-facilities based resellers.

Your Committees further find that concerns have been raised about expanding the exemption to all telecommunications carriers, since this would allow an exemption for the incumbent local exchange carrier that provides non-competitive basic landline services to the State's consumers. The measure's proponents argue, however, that current financial reporting requirements already enable the PUC to monitor a carrier's financial integrity and that elimination of the financial approval requirement will allow facilities-based carriers that are affected by market conditions to respond quickly to market changes that enhance a carrier's financial condition.

Your Committees further find that the issues raised by this measure merit further review and discussion. Accordingly, your Committees have amended this measure by inserting a delayed effective date of July 1, 2030.

As affirmed by the records of votes of the members of your Committees on Commerce, Consumer Protection and Housing and Science, Arts, and Technology that are attached to this report, your Committees are in accord with the intent and purpose of H.B. No. 2172, H.D. 2, as amended herein, and recommend that it pass Second Reading in the form attached hereto as H.B. No. 2172, H.D. 2, S.D. 1, and be referred to the Committee on Ways and Means.