BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 772 - Bowen Hearing Date: May 18, 2004
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As Amended: April 29, 2004
FISCAL/URGENCY B
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DESCRIPTION
This bill authorizes Pacific Gas & Electric Company (PG&E)
to issue recovery bonds, secured by a "dedicated rate
component" (DRC), to refinance, and lower the costs of, its
$2.21 billion "regulatory asset" established by the
California Public Utilities Commission (CPUC) pursuant to
its bankruptcy settlement with PG&E.
Specifically, this bill :
1.States the Legislature is not ratifying or endorsing any
particular outcome of PG&E's bankruptcy proceeding, but
rather is authorizing a means by which the CPUC can
reduce ratepayer costs.
2.Requires PG&E, within 120 days of the bill's enactment,
to apply to the CPUC for a financing order to facilitate
the issuance of recovery bonds. PG&E must specify that
the issuance of recovery bonds will reduce its customers'
rates.
3.Requires the CPUC, within 120 days of PG&E's application,
to approve or disapprove a financing order. In approving
a financing order, the CPUC must find that the issuance
of recovery bonds will reduce PG&E customers' rates. The
financing order establishes a property right for PG&E in
rates sufficient to repay recovery bonds.
4.Requires the CPUC to ensure collection of "recovery
costs" (the balance of the regulatory asset refinanced by
recovery bonds, associated taxes, and transaction costs)
from all electric consumers in PG&E's current service
territory, defined as the area PG&E provided with
electric distribution service as of December 19, 2003,
with the following exceptions:
a. New or expanded load of a customer served via
direct transaction which does not use PG&E's
transmission or distribution facilities (e.g. "over
the fence" sales).
b. Load served by new customer generation to the
extent the load is exempt from existing cost
responsibility surcharges [e.g. for Department of
Water Resources (DWR) costs] under existing CPUC
decisions.
c. DWR, for State Water Project load which is located
within PG&E's service territory, but does not receive
retail service from PG&E.
d. Load continuously served by a local publicly owned
(i.e. municipal) utility since January 1, 2000 (that
therefore didn't contribute to PG&E's
procurement-related debts).
e. New load in an area annexed by a city-owned
electric utility, where the city provides all its
usual municipal services. This exemption is subject
to a total limit of 50 megawatts.
1.Requires the CPUC to determine the extent to which
recovery costs are recoverable from new load served by a
municipal utility within PG&E's current service
territory. The CPUC's determination must be consistent
with its pending determination of new municipal load's
responsibility for DWR costs.
2.Provides that recovery costs are otherwise unavoidable by
customers taking service from a municipal utility that
forms in, or expands into, PG&E's current service
territory.
3.Generally prohibits the CPUC from altering the terms of
an approved financing order.
4.Provides the CPUC's authority to issue financing orders
terminates December 31, 2006.
5.Requires the CPUC to credit ratepayers with any refunds
obtained by PG&E from electricity suppliers.
6.Exempts regulations adopted to implement this bill from
the Administrative Procedures Act.
7.Provides for expedited and limited rehearing and judicial
review of CPUC decisions pursuant to this bill, similar
to provisions applicable to AB 1X (Keeley), Chapter 4,
Statutes of 2001 1st Ex. Session. A request for
rehearing must be filed within 10 days and decided within
20 days. Petitions for judicial review are limited to
the Supreme Court and must be filed within 10 days (this
provision sunsets January 1, 2008).
8.Exempts security interests created pursuant to the bill
from Civil Code provisions regarding perfection of
security interests as to third parties/creditors and
Commercial Code provisions containing consumer protection
provisions related to security interests.
9.Contains other technical bond provisions similar to the
rate reduction bond statutes enacted by AB 1890 (Brulte),
Chapter 854, Statutes of 1996, and SB 477 (Peace) Chapter
275, Statutes of 1997.
BACKGROUND
On December 18, 2003, the CPUC approved a settlement
between itself and PG&E in PG&E's federal bankruptcy court
proceeding. Prior to the settlement, PG&E and the CPUC had
been proponents of competing plans of reorganization. The
settlement and a plan of reorganization based on the
settlement have since been approved by the bankruptcy
court.
The settlement commits approximately $4 billion in
accumulated cash from excess rates collected from PG&E's
customers through 2003 to partially pay off the bankruptcy
claims. The settlement provides for the issuance of new
debt to pay off the remaining bankruptcy claims and
expenses, with the cost collected in rates until 2013.
The key financial feature of the settlement is the addition
of $2.21 billion to PG&E's rate base in the form of a new
"regulatory asset." According to the settlement, the
regulatory asset will be amortized between 2004 and 2013
and will earn no less than PG&E's current equity return of
11.22%. The regulatory asset effectively obligates PG&E
customers to borrow $2.21 billion and pay it back with the
equity return, plus taxes and amortization. The total
ratepayer cost of the regulatory asset over its nine-year
amortization is estimated at $5.27 billion. The revenues
generated by the regulatory asset will support the issuance
of new debt by PG&E. The after-tax amount of any refunds
from generators or other energy suppliers will offset the
regulatory asset.
The CPUC decision approving the settlement (Decision
03-12-035) contemplates refinancing the regulatory asset
with proceeds of bonds secured by a DRC, if certain
conditions are met, including passage of enabling
legislation. However, implementation of the settlement is
not conditioned on passage of legislation or issuance of
bonds to refinance the regulatory asset.
The purpose of this bill is to authorize the issuance of
recovery bonds to refinance the $2.21 billion regulatory
asset established by the settlement. Statutory procedures
for issuing the bonds, including the creation of a property
right in the rates necessary to repay the bonds and
limitations on the degree to which PG&E customers can avoid
those rates, improve security and lower costs. Substantial
ratepayer savings would result from the lower rate
associated with the bonds (perhaps 5%), compared to the
regulatory asset (at least 11.22% plus taxes). The sooner
the regulatory asset is refinanced, the greater the total
savings - proponents of the bill estimate savings of $1
billion, compared to the cost of the regulatory asset.
Under the bill, the CPUC would issue a financing order
authorizing a special financing entity established by PG&E
to issue recovery bonds to refinance the un-amortized
portion of the regulatory asset. The financing order would
set a charge - equal for all customers and within PG&E's
overall rates - which would be dedicated for the sole
purpose of repaying the bonds over their established term.
The financing order would provide for any necessary
adjustment to the charge to ensure the bond payments are
made according to schedule. The charge would be
"nonbypassable" - that is, all customers taking electric
service within PG&E's service territory, as defined, would
pay the charge, with specified, limited exceptions.
The bill provides for a second bond issuance - up to one
year later - to pay for taxes associated with the
regulatory asset, which are estimated at $800 million.
Both the regulatory asset and the associated taxes - and
hence the bond size - could be reduced via refunds from
generators. These refunds would benefit ratepayers
directly. The deadline in the bill for CPUC to issue a
financing order, and for issuance of bonds, is December 31,
2006.
COMMENTS
1.Bill rewritten in the Assembly. As approved by the
Senate in 2003, this bill established the test to be used
by the California Energy Commission when deciding whether
to grant a request to disclose confidential information.
2.Impact on potential future municipal utility customers.
In order to ensure predictable revenues for the repayment
of recovery bonds, this bill generally provides that
recovery costs are "nonbypassable" by electric consumers
within PG&E's current service territory, whether they are
served by PG&E or not. The municipal utilities'
opposition to the bill has focused on the fact that this
could lead to PG&E billing customers served by a
municipal utility that annexes or overlaps a portion of
PG&E's current service territory.
For a PG&E customer who may be taken over by a municipal
utility in the future, the bill clearly indicates the
customer remains responsible for paying recovery costs.
The bill doesn't specify a mechanism for collecting
recovery costs from non-PG&E customers, but it requires
the CPUC to establish an "effective mechanism that
ensures recovery?from existing and future consumers in
the service territory."
For new customers who come to take service from a
municipal utility in what is currently PG&E's service
territory, but where PG&E has not provided service (i.e.
"greenfields"), the bill doesn't resolve whether those
customers have to pay recovery costs. Instead, it
reserves the decision to the CPUC, which has considered
similar issues in the "municipal departing load" phase of
its direct access proceeding (Rulemaking 02-01-011) and
has a decision on rehearing pending. The bill directs
the CPUC to decide the extent recovery costs are
recoverable from new municipal utility-served load,
consistent with its pending rehearing decision.
In July 2003, the CPUC issued a decision excluding new
load served by a municipal utility providing service as
of February 1, 2001 from the cost responsibility
surcharge (Decision 03-07-028). In August, the CPUC
granted municipal utilities' request for rehearing of
Decision 03-07-028, but limited review to the issue of
where to draw the line on new load (Decision 03-08-076).
The decision granting rehearing asked for more evidence
on how to allocate the exemption for new load. The
rehearing is pending.
In February 2004, the CPUC approved PG&E's rate design
settlement (Decision 04-02-062). The decision adopted
the settlement's provision that the regulatory asset
charge be nonbypassable, except for specified customer
generation, but tied the final outcome on new municipal
load responsibility to the outcome of the rehearing
referenced above.
In the Assembly, this bill alternately included, then
excluded, greenfields from the obligation to pay recovery
costs. In a compromise, the bill ultimately was amended
to not decide the issue. Instead, except for a limited
exemption for greenfield load served by city-owned
utilities, the bill deliberately requires the CPUC to
decide the greenfield issue by applying its pending
decision on responsibility for DWR costs.
PRIOR VOTES
Assembly Floor (69-2)
Assembly Appropriations Committee (18-0)
Assembly Utilities and Commerce Committee(11-0)
Assembly Utilities and Commerce Committee(11-0)
Assembly Utilities and Commerce Committee(3-5)
Assembly Appropriations Committee (22-1)*
Assembly Governmental Organization Committee(20-0)*
Assembly Utilities and Commerce Committee(11-0)*
Senate Floor (29-3)*
Senate Judiciary Committee (5-1)*
*Votes reflect a previous, unrelated version of the bill
POSITIONS
Support:
California Film Extruders and Converters Association
California Large Energy Consumers Association
California Manufacturers & Technology Association
California Public Utilities Commission
Coalition of California Utility Employees
Office of Ratepayer Advocates
Pacific Gas & Electric Company
The Utility Reform Network (TURN)
Oppose:
Agricultural Energy Consumers Association
California Municipal Utilities Association
City of Alameda
City of Gridley
City of Roseville
City of Santa Clara
Greater Merced Chamber of Commerce
Golden Valley Engineering & Surveying
Hilltop Ranch
Joseph Gallo Farms
Maxwell Homes
Merced Irrigation District
McRoy-Wilbur Communities
Modesto Irrigation District
Northern California Power Agency
On Target Marketing
Sacramento Municipal Utility District
Sacramento Regional County Sanitation District
South San Joaquin Irrigation District
Truckee Donner Public Utility District
Lawrence Lingbloom
SB 772 Analysis
Hearing Date: May 18, 2004