BILL ANALYSIS
SB 772
Page 1
SENATE THIRD READING
SB 772 (Bowen)
As Amended April 29, 2004
2/3/ vote. Urgency
UTILITIES AND COMMERCE 11-0 APPROPRIATIONS 18-0
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|Ayes:|Reyes, Bogh, Calderon, |Ayes:|Chu, Runner, Bates, Berg, |
| |Bermudez, Diaz, Jerome | |Calderon, Corbett, |
| |Horton, La Malfa, Levine, | |Daucher, Goldberg, Keene, |
| |Salinas, Strickland, | |Leno, Nation, Negrete |
| |Wesson | |McLeod, Oropeza, Pavley, |
| | | |Ridley-Thomas, Wesson, |
| | | |Wiggins, Yee |
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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 the Pacific Gas &
Electric (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)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 (DWR) 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; and,
f) New municipal load which PUC determines should not be
subject to the DRC consistent with PUC allocation of DWR
power purchase costs.
3)States 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.
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 PUC can reduce
ratepayer costs.
7)States that this bill shall take effect immediately.
FISCAL EFFECT : Absorbable costs to PUC to review the request
for recovery bond financing and to determine the allocation of
bond repayment costs through the dedicated rate component.
COMMENTS : This bill codifies and authorizes a portion of a
settlement agreement between PG&E, PUC and TURN to finance
PG&E's exit from bankruptcy. Specifically,
This bill 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
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already been authorized by PUC to finance PG&E's debts. The
recovery bonds will be backed by ratepayers through a DRC.
The regulatory asset : A regulatory asset is a paper asset that
allows PG&E to show more equity on its books without actually
constructing any new facilities or making new investments. The
increased equity allows PG&E to borrow more money than it
otherwise could. The regulatory asset will be treated in rates
the same way a power plant would be, meaning PG&E will recover
the cost of the asset plus a guaranteed rate of return of no
less than 11.22%. This return will give PG&E the financing it
needs to repay its debt. Since a regulatory asset will be
subject to federal taxes and high rates of return, it will be a
very expensive way of financing PG&E's debt.
The recovery bonds: The recovery bonds will be similar to rate
reduction bonds that were issued in 1997. Since ratepayers back
the bonds, they should not impact PG&E's credit ratings, but can
still be used to pay PG&E debts. Bonds backed by a DRC 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 this bill.
Opponents to this bill are concerned that it would require
ratepayers located within PG&E's current service territory to
continue to pay the DRC even if they become customers of another
service provider. Principally, the publicly owned utilities
believe that any "greenfield" development within current PG&E
territory that is annexed by a publicly owned utility should be
exempt from paying the DRC. They 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.
According to the supporters of this bill, this provision is
absolutely necessary to assure the predictable customer base
that the bond rating companies will demand before giving the
bonds the highest investment ratings. Additionally, the
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provision assures that there will be no cost shifting and that
customers that do no have an option of alternate service will
not be burdened with increased costs.
This bill addresses opponent concerns by allowing PUC to exempt
greenfield annexation by publicly owned utilities from the DRC
if the exemption is consistent with the allocation of the costs
DWR incurred purchasing power on behalf of the utilities.
Additionally, this bill specifically exempts greenfields annexed
from PG&E by cities that would provide all municipal services,
including electricity, to the annexed areas
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.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083
FN: 0005077