BILL ANALYSIS
SB 772
Page 1
Date of Hearing: March 31, 2004
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Sarah Reyes, Chair
SB 772 (Bowen) - As Amended: March 22, 2003
SENATE VOTE : Senate votes not relevant.
SUBJECT : Electricity: financing energy recovery.
SUMMARY : Permits the California Public Utilities Commission
(PUC) to authorize the issuance of bonds secured by a dedicated
rate component (DRC) to finance a portion of Pacific Gas &
Electric's (PG&E) bankruptcy related debts. PUC may only
authorize the issuance of bonds if the action will benefit
ratepayers through lower rates. Specifically, this bill :
1)Requires PG&E, no later than 120 days from enactment of this
bill, to apply to PUC to recover costs associated with the
regulatory asset approved as part of PG&E's bankruptcy
settlement agreement, and authorizes PUC to approve recovery
of these costs through the issuance of bonds backed by a
property right in a non-bypassable charge on utility rates if
PUC finds such bonds will result in lower rates.
2)Provides that the recovery bond costs shall be financed from
all consumers in PG&E's service territory that received
electric distribution services from PG&E after January 1,
2000, but shall not be imposed on:
a) New or incremental load that is met through direct
transactions and the transaction does not require the use
of PG&E transmission or distribution facilities;
b) Departing load that is already exempted from Department
of Water Resources (DWR) power procurement charges
pursuant to PUC decisions; and
c) Pumping, generation, and transmission facilities of DWR
if such facilities did not receive electric service from
PG&E before December 19, 2003, or does not receive electric
service from PG&E thereafter.
3)States that any financing order issued under this bill shall
not constitute a debt or liability of the state, and does not
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constitute a pledge of the full faith and credit of the state.
4)Requires that any payments, offsets or other credits that PG&E
receives from electric generators or energy suppliers shall be
credited to ratepayers.
5)Provides for an expedited judicial review process of PUC
decisions implementing this act.
6)States that the Legislature is not ratifying or endorsing any
particular outcome of PG&E's federal bankruptcy proceeding,
but rather is authorizing a means by which the PUC can reduce
ratepayer costs.
7)States that this bill shall take effect immediately.
EXISTING LAW:
1)Provides for the issuance of rate reduction bonds by the
California Infrastructure and Economic Development Bank to
finance a 1997 10% rate reduction for residential and small
commercial consumers.
2)Provides that the Competitive Transitions Costs (CTC)
associated with deregulation under AB 1890, Chapter 854,
Statutes of 1996, shall be borne by all consumers in the
service territory in which the utility provided electricity
services, excepting new or incremental load of over the fence
transactions. Such costs cannot be avoided by the formation of
a local publicly owned electrical corporation, or by
annexation of any portion of an electrical corporation's
service area by an existing local publicly owned electric
utility.
3)Provides that it is the intent of the Legislature that each
retail end-use customer that has purchased power from an
electrical corporation after February 1, 2001, should bear a
fair share of the DWR's electricity purchase costs, as well as
electricity purchase contract obligations that are recoverable
from customers in commission approved rates.
FISCAL EFFECT : Unknown.
COMMENTS : The committee initially heard and approved SB 772
with amendments on February 4, 2004. This bill codifies and
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authorizes a portion of the settlement agreement between PG&E,
PUC and TURN to finance PG&E's exit from bankruptcy.
Specifically, SB 772 grants PUC the authority to issue recovery
bonds to finance a portion of PG&E's bankruptcy costs. The
recovery bonds will be used to replace a regulatory asset that
has already been authorized by the PUC to finance PG&E's debts.
The recovery bonds will be backed by ratepayers through a
dedicated rate component (DRC).
These bonds will be similar to rate reduction bonds that were
issued in 1997. Since the bonds are backed by ratepayers, they
should not impact PG&E's credit ratings, but can still be used
to pay PG&E debts. Bonds backed by a dedicated rate component
will be viewed as highly secure bonds and can be sold at low
interest rates. This means that the bonds will be a more
affordable way to finance the same debt that is currently
covered by a regulatory asset. Based on current interest rates,
financing PG&E's debt through a recovery bond will save
ratepayers close to $1 billion.
For more information on PG&E's bankruptcy agreement, the
regulatory asset, and the recovery bond refer to the January 30,
2004 analysis of SB 772.
Previous Positions on SB 772
During the February 4th hearing concerns were raised over
provisions in the bill specifying which ratepayers would bear
the cost responsibilities of the bonds in the future.
Specifically, the California Municipal Utility Districts, the
Merced Irrigation District, and the Turlock Irrigation District
were all concerned that the bill would require customers that
were either customers of PG&E prior to December 18, 2003, or are
located in new developments that were part of PG&E's service
territory prior to December 18th 2003, to be pay a portion of
the bond costs.
In committee, the opponents of SB 722 requested that all
customers of publicly owned utilities be exempted from the DRC,
regardless of whether or not the customer was previously a
customer of PG&E or is located in an area that was once part of
PG&E's service territory.
Supporters of the bill argue that exempting these customers from
the DRC will undermine the rate savings that SB 722 tries to
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achieve and will shift additional costs onto PG&E ratepayers.
The supporters claim their bond counsels believe that any
exemption will introduce an element of risk that future customer
bases will decrease, leaving fewer people to pay off the bonds.
They believe that this risk could threaten the credit rating of
the bonds and result in increased costs for the remaining PG&E
ratepayers.
Green Field Exemptions
While some of the opponents wish to completely exempt all
customers of a publicly owned utility from the DRC, even if the
customers were once customers of PG&E, the current debate over
customer exemptions centers on exempting green field annexation.
Green fields annexation involves the annexation by a publicly
owed utility of land within the PG&E service territory that is
undeveloped and contains no existing customers served by PG&E.
Past Legislative Action
At the February 4, 2004, hearing the committee agreed with some
of the concerns of the publicly owned utilities and passed the
bill with amendments to exempt load served by cities annexing
green fields. The amendments left all other annexed land
subject to the DRC, including all annexations by municipal
utility districts and irrigation districts. The February 9,
2004, version of SB 772 reflects the committee action.
However, amendment to SB 722 taken on March 22, 2004, takes the
bill one step further by exempting all green field development.
Additionally, the March 22, 2004 amendments address a concern
raised by DWR that the bill could be read to impose the DRC on
DWR facilities that have historically received power through
wholesale transactions and not from PG&E.
Consistent with Existing Law?
Both sides argue that their position is consistent with existing
law and PUC actions. However, PUC's past actions relating to
allocation of other costs associated with the energy crisis do
not create a clear, consistent method for allocating the DRC.
In allocating the costs responsibility surcharge (CRS)
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associated with DWR's power procurement costs the PUC ruled that
green field annexations by existing publicly owned utilities is
exempt from the obligation to pay the CRS. The PUC also ruled
that any green field annexation by a publicly owned utility
created after February 1, 2001, will be subject to the CRS.
This last portion of PUC's allocation of the CRS is now subject
to rehearing and could potentially change.
However, PUC has also ruled that the costs of the regulatory
asset, which the DRC will replace, is non-bypassable and will be
paid by all customers located within PG&E current service
territory. This includes any future customers in green fields
annexed by a publicly owned utility. PUC also noted that the
allocation of the bankruptcy costs should be treated the same as
the CRS. The PUC will allow the publicly owned utilities to
file for a change in the rate allocation consistent with the CRS
allocation once the rehearing for the CRS rate allocation is
completed.
Impact on PG&E Bankruptcy Proceeding
This measure grants PUC authority to approve the issuance of
recovery bonds. While the settlement agreement between PG&E and
PUC calls for such bonds, this measure does not incorporate any
portion of the PUC approved settlement agreement. Instead this
measure should be viewed as a stand-alone action of the
Legislature. The Legislature is neither directly nor implicitly
ratifying the overall actions of PUC relating to the PG&E
bankruptcy proceedings.
Failure to Approve Legislation
Despite the complexities of the financing involved in this
legislation and PG&E settlement agreement, the actions already
taken by PUC leave the Legislature with a simple choice.
Because the regulatory asset is already authorized and
legislation is needed to replace it with less expensive
financing, the Legislature can either approve the recovery bonds
and reduce rates for PG&E customers by close to $1 billion or
leave the regulatory asset in place with its resulting higher
rates.
REGISTERED SUPPORT / OPPOSITION :
Support
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California Large Energy Consumers Association
California Manufacturers & Technology Association
Opposition
California Municipal Utilities Association
Northern California Power Agency (NCPA)
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083