BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 772|
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UNFINISHED BUSINESS
Bill No: SB 772
Author: Bowen (D)
Amended: 4/29/04
Vote: 27 - Urgency
PRIOR SENATE VOTES NOT RELEVANT
SENATE ENERGY, UTIL. AND COMM. COMMITTEE : 5-0, 5/18/04
AYES: Bowen, Morrow, Alarcon, Battin, Vasconcellos
NO VOTE RECORDED: Dunn, McClintock, Murray, Sher
ASSEMBLY FLOOR : 69-2, 5/10/04 - See last page for vote
SUBJECT : Electricity: financing energy recovery
SOURCE : Author
DIGEST : This bill authorizes Pacific Gas and 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.
Assembly Amendments delete the prior version. As it left
the Senate, the bill established the test to be used by the
State Energy Resources Conservation and Development
Commission in granting a written request for disaggregated
or unmasked records of confidential information it has
received or developed.
CONTINUED
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ANALYSIS : Existing law establishes the California
Infrastructure and Economic Development Bank. The existing
restructuring of the electric services industry provides
for the issuance of rate reduction bonds by the bank for
the recovery of transition costs by electrical
corporations.
Under existing law, CPUC has regulatory authority over
public utilities, including electrical corporations.
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).
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B. Load served by new customer generation to the
extent the load is exempt from existing cost
responsibility surcharges [e.g. for State 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.
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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 percent. The regulatory asset effectively obligates
PG&E customers to borrow $2.21 billion and pay it back with
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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 five percent), compared
to the regulatory asset (at least 11.22 percent 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 unamortized
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.
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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
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
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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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
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.
According to the State Department of Finance, "such bonds
would benefit ratepayers by reducing the cost of servicing
this debt by a cumulative total of about $1 billion."
SUPPORT : (Verified 5/18/04)
California Film Extruders and Converters Association
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California Large Energy Consumers Association
California Manufacturers and Technology Association
California Public Utilities Commission
Coalition of California Utility Employees
Office of Ratepayer Advocates
Pacific Gas and Electric Company
The Utility Reform Network (TURN)
OPPOSITION : (Verified 5/18/04)
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 and 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
ASSEMBLY FLOOR :
AYES: Aghazarian, Bates, Benoit, Berg, Bermudez, Bogh,
Calderon, Campbell, Canciamilla, Chavez, Chu, Cogdill,
Cohn, Corbett, Cox, Daucher, Diaz, Dutra, Dutton,
Dymally, Frommer, Garcia, Goldberg, Hancock, Harman,
Haynes, Jerome Horton, Shirley Horton, Houston, Jackson,
Keene, Kehoe, Koretz, La Malfa, La Suer, Laird, Leno,
Leslie, Levine, Lieber, Longville, Lowenthal, Maddox,
Maldonado, Maze, McCarthy, Mullin, Nakano, Nation,
Negrete McLeod, Oropeza, Pacheco, Parra, Pavley, Plescia,
Reyes, Richman, Ridley-Thomas, Runner, Salinas,
Samuelian, Simitian, Strickland, Vargas, Wiggins, Wolk,
Wyland, Yee, Nunez
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NOES: Matthews, Steinberg
NO VOTE RECORDED: Chan, Correa, Firebaugh, Liu, Montanez,
Mountjoy, Nakanishi, Spitzer, Wesson
NC:sl 5/19/04 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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