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HomeFinancial CodeDiv. 2Ch. 6Art. 2.5§ 7274 Utility Bond Requirements

§ 7274 Utility Bond Requirements

Financial Code·California
AI Summary·Official Text·Key Terms·Related Statutes·References
AI SummaryVerified

§ 7274 Utility Bond Requirements

Key Takeaways

  • •This law sets rules for companies that provide gas, electricity, phone, or water services when they want to borrow money by selling bonds or debentures.
  • •The company must be big enough, making at least $7.5 million in a year, and most of its money must come from providing these services.
  • •The company can't owe too much money compared to what its property is worth—no more than two-thirds of the property's value.
  • •The company must have made enough profit in the last five years to easily pay the interest on its loans.

Example

A big electric company wants to borrow money to build new power lines.

The company must show it makes at least $7.5 million a year, mostly from selling electricity. It also must prove it can pay back the loan by showing it made enough profit in the last five years.

AI-generated — May contain errors. Not legal advice. Always verify source.

Official Source
View on CA.gov

§ 7274 Utility Bond Requirements

Bonds and debentures of gas, electric, or gas and electric companies meeting the requirements of subdivision (a), bonds and debentures of telephone companies meeting the requirements of subdivision (b), and the bonds and debentures of water companies meeting the requirements of subdivision (c), as follows: (a) Bonds or debentures of gas, electric, or gas and electric companies shall be of an issue that originally amounted to not less than one million dollars ($1,000,000) and, if bonds, be secured by a mortgage on substantially all of its physical property, and, if debentures, shall be issued by a company substantially all of whose physical property is free of mortgage and shall carry a covenant to be secured equally with any mortgage indebtedness, except a purchase money mortgage, subsequently issued, and both bonds and debentures shall be issued by a public utility corporation, which does all of the following: (1) Derives more than 50 percent of its gross operating revenue from the business of supplying electricity, artificial gas, or natural gas or all or any of these services, and at least 80 percent of its gross operating revenue from all or any of the public utility businesses enumerated in this section. (2) Has a gross operating revenue of not less than seven million five hundred thousand dollars ($7,500,000) for its most recent fiscal year. (3) Has a funded debt not exceeding two-thirds of the value of its physical property as shown by the books of the corporation or by a statement of a certified public accountant issued within one year, which statement may be based upon the books of the corporation, less the amount of any reserves for depreciation, retirement, or amortization of the physical property. Physical property of a corporation shall include the physical property of a subsidiary corporation if the corporation owns not less than 90 percent of the outstanding voting shares of the subsidiary corporation. (4) Has had earnings, including earnings of subsidiaries mentioned in paragraph (3), available for interest payments, before deduction of state and federal taxes imposed on or measured by income or profits, during four of the five most recent fiscal years and during the most recent fiscal year equal to at least twice the existing annual interest charges on the corporation’s total funded debt during those respective fiscal years. (b) Bonds or debentures of telephone companies shall be of an issue originally amounting to at least one million dollars ($1,000,000) and, if bonds, secured by a mortgage on substantially all of the physical property of the company, and, if debentures, be issued by a company substantially all of whose physical property is free of mortgage and shall carry a covenant to be secured equally with any mortgage indebtedness, except a purchase money mortgage, subsequently issued, and both bonds and debentures shall be issued by a company subject to the following: (1) The company has during its last fiscal year had gross revenues of at least seven million five hundred thousand dollars ($7,500,000), more than 50 percent of which was derived from owned properties used in furnishing telephone and other communication services and at least 80 percent of its gross revenues from all or any of the public utility businesses enumerated in this section. (2) The funded debt does not exceed two-thirds of the value of its physical property as shown by the books of the corporation or by a statement of a certified public accountant issued within one year, which statement may be based upon the books of the corporation, less the amount of any reserves shown on the statement for depreciation, retirement, or amortization as the physical property. Physical property of a corporation shall include the physical property of a subsidiary corporation if the corporation owns not less than 90 percent of the outstanding voting shares of the subsidiary corporation. (3) For four of the five most recent fiscal years and for the last fiscal year has had earnings, including earnings of subsidiaries mentioned in paragraph (2), available for the payment of interest charges, before deduction of state and federal taxes imposed on or measured by income or profits, at least equal to twice the interest charges on the company’s total funded debt during those respective fiscal years. (c) Water company bonds or debentures shall be of an issue originally amounting to at least one million dollars ($1,000,000) and, if bonds, secured by a first mortgage on the company’s property, and, if debentures, issued by a company substantially all of whose property is free of mortgage and carry a covenant to be secured equally with any mortgage indebtedness, except a purchase money mortgage, subsequently issued, and both bonds and debentures shall be issued by a company subject to the following: (1) The company is the supplier of substantially all water for domestic use in a community or communities having a population of not less than 25,000. (2) The funded debt of the company does not exceed two-thirds of the value of its physical property as shown by the published statement of the company for its next preceding fiscal period, less the amount of any reserves shown for depreciation, retirement, or amortization of the physical property. Physical property of a corporation shall include the physical property of a subsidiary corporation if the corporation owns not less than 90 percent of the outstanding voting shares of the subsidiary corporation. (3) For four out of the five most recent fiscal years and for the most recent fiscal year has had earnings, including those of subsidiaries mentioned in paragraph (2), available for the payment of interest charges, before deduction of state and federal taxes imposed on or measured by income or profits, of at least one and one-half times the interest charges on the company’s total funded debt during those respective fiscal years. (Amended by Stats. 2006, Ch. 538, Sec. 168. Effective January 1, 2007.)

Last verified: January 23, 2026

Key Terms

corporationretirementmortgagecovenantpropertyutilitystatementelectricity

Related Statutes

  • § 7272 Corporate Debt Investment Rules
  • § 7262 Public Corporation Bond Eligibility
  • § 7263 Public Corporation Bond Limits
  • § 7264 Foreign Government Bond Exemptions
  • § 7266 Farm Credit System Securities

References

  • Official text at leginfo.legislature.ca.gov
  • California Legislature. Financial Code. Section 7274.
View Official Source