BILL ANALYSIS
SB 18 X2
Page 1
Date of Hearing: September 6, 2001
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Carole Migden, Chairwoman
SB 18 X2 (Burton) - As Amended: July 20, 2001
Policy Committee: E.C.&A.Vote:18-0
Urgency: Yes State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill, as proposed to be amended , requires that the bond
repayment mechanism specified for Department of Water Resources
(DWR) procurement financing be fixed by an irrevocable Public
Utilities Commission (PUC) bond financing order. Specifically,
this bill:
1)Requires that the financing order be sufficient to pay costs
of issuing, servicing and retiring DWR bonds.
2)Requires the bond set-asides to be designated as a
non-bypassable, separate rate component on an electrical
corporation's retail end-user's bill. Requires that a DWR
set-aside rate component consist of and be derived from a
portion of rate levels already established and in effect on
September 30, 2001.
3)Establishes the DWR Bond Repayment Fund, continuously
appropriated to DWR and available for the purpose of payment
of bond financing costs.
4)Entitles the PUC to review the revenue requirements of DWR and
requires the PUC to conduct at least one public hearing and
provide for public comment prior to adoption of revenue
requirements.
FISCAL EFFECT
1)Absorbable costs to the PUC.
2)To the extent that establishing the dedicated rate set-aside
for bond repayment provides greater security for the bonds,
SB 18 X2
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total debt payments will be reduced due to a higher bond
rating, lower interest rate and lower reserve requirements on
the bonds. These reduced debt payments translate to savings
for ratepayers.
COMMENTS
1)Background . Since January 2001, the DWR has assumed power
procurement responsibilities from the electrical corporations.
To finance these purchases, DWR is authorized to issue up to
$13.4 billion in revenue bonds, subject to specified terms and
conditions. Existing law also permits DWR to have the PUC
issue finance orders to recover revenue requirements, and
delegates to DWR the authority to determine if the revenue
requirements are just and reasonable. Existing law further
requires DWR, before the issuance of bonds, to establish a
mechanism to ensure that the bonds will be sold at investment
grade ratings and repaid on a timely basis from pledged
revenues. In order to complete the financing of the DWR
costs, lenders are requiring a rate agreement with the PUC.
2)Purpose . The bonds and all other DWR power costs are payable
from revenues derived from sales of DWR power. According to
the author's office, the costs and rates associated with DWR
power, as proposed in DWR's pending rate agreement with the
PUC, are subject to ongoing disputes that are jeopardizing the
sale, and potentially increasing the cost, of the bonds. This
bill is intended to provide an alternative to the rate
agreement and to lower the cost of borrowing for ratepayers.
Instead of a rate agreement, this bill creates a dedicated
payment stream for the bonds. This set-aside should provide
better security to bondholders which should reduce the cost of
the bonds and, therefore, the cost to ratepayers.
3)Contract Payments vs. Bond Repayment . This bill's
establishment of the Bond Repayment Set-Aside Fund provides
that bond repayments are not made into the Electric Power Fund
established in AB 1 X1 (the January legislation authorizing
DWR to purchase power), and in that way do not violate the
previous legislation. Proceeds from the bond sale go into the
Electric Power Fund, providing cash to pay contract costs.
The non-bypassable charge on retail end user bills goes into
the new set-aside fund to repay the bonds. It is arguable
that security for the contracts is lost in this process. The
contracts are controversial, as it has been revealed that very
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high unit costs per kilowatthour (kWh) were paid, and some
parties have urged that DWR renegotiate those contracts.
Whether or not that renegotiation takes place, the contract
costs are recovered through the Electric Power Fund.
This bill appears to neither help nor hurt the effort to
renegotiate the contracts, reduce the going forward
procurement costs of the department, and reduce passed-on
costs to users. What this bill does is establish different
revenue streams for contract payments and bond repayment. End
user rate revenues through the non-bypassable DWR set-aside go
into the separate fund to repay the bonds, and contract costs
are repayed from the Electric Power Fund pursuant to existing
law.
4)Amendments . The author's amendments are generally technical
or clarifying amendments to address issues raised by the State
Treasurer.
Analysis Prepared by : Chuck Nicol / APPR. / (916)319-2081