BILL ANALYSIS
SB 772
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Date of Hearing: April 21, 2004
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Judy Chu, Chair
SB 772 (Bowen) - As Amended: April 13, 2004
Policy Committee:
UtilitiesVote:11-0
Urgency: Yes State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill authorizes the issuance of bonds, secured by a
dedicated rate component, to finance a portion of Pacific Gas
and Electric's (PG&E's) bankruptcy settlement agreement.
Specifically, this bill:
1)Requires PG&E, within 120 days of the bill's enactment, to
apply to the Public Utilities Commission (PUC) to recover
costs associated with the regulatory asset-approved as part of
PG&E's bankruptcy settlement agreement-and authorizes the PUC
to approve recovery of those costs through bonds backed by a
non-bypassable charge on utility rates.
2)Establishes that any financing order issued under this bill
shall not constitute a debt or liability of the state, and
does not constitute a pledge of the full faith and credit of
the state.
3)Requires the recovery bond costs to be repaid by existing and
future consumers within PG&E's service area as it existed on
December 19, 2003, except for:
a) New or incremental load met through direct
(over-the-fence) transactions not requiring PG&E
transmission or distribution facilities.
b) Departing load already exempted from Department of Water
Resources power charges pursuant to previous PUC decisions
(mainly customer-owned renewable generation).
c) Pumping, generation, and transmission facilities of DWR
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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.
d) Retail electric load continuously served by a local
publicly-owned utility since January 1, 2000.
e) Up to 50 megawatts of new load in PG&E's service
territory that, after December 19, 2003, is annexed to a
city that provides the same municipal services, including
electric service, to that territory as the city provides
throughout its jurisdiction.
4)Requires the commission to determine, consistent with a prior
decision and rehearing regarding a portion of that decision,
the extent to which bond recovery costs must be paid by new
municipal utility load within the PG&E service territory.
FISCAL EFFECT
Absorbable costs to the PUC to review the request for recovery
bond financing and to determine the allocation of bond repayment
costs through the dedicated rate component.
COMMENTS
1)Background . As a result of multi-billion debts accrued during
the state's energy crisis, PG&E filled for Chapter 11
bankruptcy protection in April 2001. In December 2003, the
PUC approved a proposed settlement agreement to allow PG&E to
recover from bankruptcy, and this agreement was recently
approved by the federal Bankruptcy Court.
Regulatory Asset. A key component of the agreement allows
PG&E to refinance a large portion of its existing debts by
first creating a "regulatory asset." This is a paper asset
that will allow PG&E to show more equity on its books without
actually constructing any new facilities or making new
investments. The increased equity will, in turn, allow PG&E
to borrow more money than it otherwise could in order to repay
its creditors. The regulatory asset will be treated through
electricity rates in the same way as a power plant, thus PG&E
will recover the cost of the asset plus a guaranteed rate of
return of no less than 11.22 percent. Because the regulatory
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asset will be subject to federal taxes and high rates of
return, it will be a relatively expensive way of eliminating
PG&E's bankruptcy-related debt.
2)Purpose . This bill, which is sponsored by PG&E, the PUC, and
The Utility Reform Network (TURN), gives the PUC the authority
to approve the issuance of recovery bonds as a financing
mechanism to replace the regulatory asset. (The recovery
bonds are also part of the bankruptcy settlement agreement,
but require legislative authorization.) These bonds will be
backed by ratepayers through a dedicated rate component and
thus their high degree of security should yield the lowest
possible interest rates. In addition, the recovery bonds will
significantly reduce the tax consequences and eliminate other
costs associated with the regulatory asset. The sponsors
estimate that issuance of the recovery bonds will reduce the
ratepayer cost of PG&E's bankruptcy settlement by over $1
billion.
3)Opposition . Earlier versions of the bill were opposed by the
municipal electric utilities (munies), including irrigation
districts that provide electricity. Opponents have no issue
with the recovery bond mechanism, but maintained that the
bill's exemptions from responsibility for paying the dedicated
rate component are too narrow. Principally, the munies
believe that any "greenfield" development within current PG&E
territory that is annexed to the munies should be exempt from
paying the dedicated rate component. The munies argue that
consumers in these new developments have never been, nor ever
will be, PG&E customers, and thus should bear no
responsibility for a PG&E bankruptcy-related charge. At the
time this analysis was written, the committee had only
received written opposition to the current version from the
Northern California Power Agency.
PG&E argued, on the other hand, that exempting customers in new
developments from the dedicated rate component will give the
munies a competitive advantage to "cherry pick" new
developments in adjoining PG&E territory. The bill has a more
narrow exemption for greenfields annexed from PG&E by those
cities that would provide all municipal services, including
electricity, to the annexed areas.
4)Recent Amendment . The most recent amendment, as adopted by
the policy committee, requires the commission to determine
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whether new municipal utility load in general-whether through
annexation of PG&E territory that is a greenfield or existing
development-is subject to the recovery bond costs. The
determination must be consistent with a prior commission
decision related to this issue, part of which is subject to
appeal.
Specifically, in allocating the costs responsibility surcharge
(CRS) associated with DWR's power procurement costs resulting
from the energy crisis, the PUC ruled that greenfield
annexations by existing publicly owned utilities are exempt
from the obligation to pay the CRS. The PUC also ruled that
any greenfield 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.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081