BILL NUMBER: SB 888	AMENDED
	BILL TEXT

	AMENDED IN SENATE  APRIL 8, 2003

INTRODUCED BY    Senator Dunn   Senators Dunn,
Bowen, and Burton 
    (Coauthors:  Senators Alpert, Escutia, Karnette, Kuehl,
Machado, Ortiz, Perata, and Romero) 
    (Coauthors:  Assembly Members Matthews and Steinberg) 

                        FEBRUARY 21, 2003

   An act to  add Section 712 to   amend
Sections 335, 352, 364, 367, 377, 379, 392, and 9604 of, to amend and
renumber Section 454.1 of, to add Sections 330.1, 330.2, 330.4,
330.6, 367.5, 393.1, 393.2, 454.10, and 761.7 to, to repeal Sections
334, 338, 341.1, 341.5, 346, 348, 350, 355, 356, 359, 360, 361, 365,
365.5, 366.5, 367.7, 370, 373, 376, 378, 389, 391, 397, 9600, 9601,
9602, 9603, and 9605 of, and to repeal and add Sections 330 and 366
of,  the Public Utilities Code, relating to public utilities.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 888, as amended, Dunn.  Public utilities:  electrical
restructuring.
    Existing law authorizes the Public Utilities Commission
  (1) The California Constitution establishes the Public
Utilities Commission, with jurisdiction over all public utilities.
Private corporations and persons that own, operate, control, or
manage a line, plant, or system for the production, generation,
transmission, or furnishing of heat, light, or power, directly or
indirectly to or for the public, are public utilities subject to
control by the Legislature.  The Constitution grants the commission
certain general powers over all public utilities, including the power
to fix rates and establish rules, and authorizes the Legislature,
unlimited by the other provisions of the Constitution, to confer
additional authority and jurisdiction upon the commission, that is
cognate and germane to the regulation of public utilities.  The
Public Utilities Act authorizes the commission  to supervise and
regulate every public utility in the state, including electrical
 , gas, and heat  corporations, subject to provisions
restructuring the electrical industry.  
   This bill would declare the intent of the Legislature in
subsequent legislation, to repeal those provisions restructuring the
electrical industry.  
   The existing restructuring of the electrical services industry
provides for the authorization of direct transactions between an
electric service provider, as defined, and retail end-use customers
of an electrical corporation and allows end-use customers to
aggregate their loads to facilitate direct transactions.  The
existing restructuring of the electrical industry within the Public
Utilities Act provides for the establishment of an Independent System
Operator (ISO) and a Power Exchange as separately incorporated
public benefit nonprofit corporations.  An Electricity Oversight
Board (Oversight Board) is also established to oversee the ISO and
the Power Exchange in order to ensure the success of electric
industry restructuring and to ensure a reliable supply of electricity
in the transition to a new market structure. The ISO is required by
existing law to participate in all relevant proceedings of the
Federal Energy Regulatory Commission (FERC).  Pursuant to an order of
the FERC, the Power Exchange has ceased to function.  The Oversight
Board is granted various powers including, but not limited to,
requiring the revision of the bylaws of the ISO and the approval of
the entry of the ISO into a multistate entity or a regional
organization.  Existing law requires the ISO to adopt certain
inspection, maintenance, repair, and replacement standards for the
transmission facilities under its control and to make a related
report to the Oversight Board.  Existing law authorizes the ISO and
the Power Exchange to enter into a regional compact or other
comparable agreement to become western states regional organizations.

   This bill would enact the Repeal of Electricity Deregulation Act
of 2003.  The bill would provide that the obligation of electrical
and gas corporations to provide adequate service at just and
reasonable rates, includes a duty of care, a duty of loyalty, a duty
of disclosure, and a duty to use best efforts by the corporation's
management, to maintain safe, healthful, and affordable basic service
for end-use customers, consistent with the statutes of the state and
the rules, regulations, decisions, and orders of the commission.
The bill would require the commission to ensure that public utility
employees and investors are afforded the means to carry out these
obligations, specifically including reasonable compensation for
employees and fair sharing of risks and rewards for investors.  The
bill would require the commission to ensure that generation assets
remain dedicated for the benefit of the electrical corporation's
bundled customers, and establishes standards for the recovery of
costs and return on investment.  The bill would authorize the
commission to require electrical corporations to make investments in
electric plants that are dedicated to serve customers connected to
the electrical corporation's distribution system or grid, or to
contract for such investment with the California Consumer Power and
Conservation Financing Authority.
   This bill would delete the authorization of direct transactions,
including aggregation of loads and other provisions to facilitate
direct transactions, between an electric service provider and retail
end-use customers of an electrical corporation, on a prospective
basis.  The bill would require all metering of customer usage of
electricity and customer billing to be performed by the electrical
corporation and would prohibit residential and small commercial
customers being required to take service under a time-differentiated
rate without prior consent.
   This bill would delete those provisions establishing the Power
Exchange and would make conforming changes repealing those provisions
granting powers to the Oversight Board relative to the Power
Exchange.  The bill would delete provisions relative to the ISO
participation in FERC activities.  The bill would require the
Legislature to approve the entry of the ISO into a multistate or
regional transmission organization, and would repeal that provision
regarding the adoption of standards for transmission facilities by
the ISO.  The bill would require the commission to periodically
review and update inspection, maintenance, repair, and replacement
standards for the distribution and transmission systems of
investor-owned electric utilities.  The bill would repeal the
regional compact provision.  The bill would make other conforming
changes.  Because any violation of the Public Utilities Act is a
crime, the bill would impose a state-mandated local program by
changing the definition of a crime.
   This bill would establish a Ratepayer Refund Account for each
electrical corporation, into which would be paid any funds recovered
by electrical corporations resulting from litigation or agreement
relative to the charging of excessive costs for wholesale electricity
by electrical generators.  All funds would be held in trust on
behalf of ratepayers.
   (2) The existing Public Utilities Act, prohibits any person or
corporation from acquiring or controlling, directly or indirectly,
any public utility organized and doing business in this state,
including electrical corporations and gas corporations, without first
securing authorization to do so from the commission.
   Existing law requires the commission, before authorizing the
acquisition or control of an electric, gas, or telephone utility
having revenues in excess of a specified amount, to consider, among
other things, that the proposal provides short-term and long-term
economic benefits to ratepayers, and equitably allocates the
short-term and long-term forecasted economic benefits of the proposed
merger, acquisition, or control, as determined by the commission,
between shareholders and ratepayers, where the commission has
ratemaking authority.
   Pursuant to the act, the commission has authorized the formation
of holding companies holding a controlling interest in certain
electrical corporations and gas corporations.  The commission has
conditioned authorization upon the capital requirements of the
electrical corporation or gas corporation being given first priority
by the board of directors of the parent holding company, as
determined by the commission as being necessary to meet the
obligation to serve the electrical corporation or gas corporation.
   This bill would provide that a holding company as defined, or
other entity that owns, controls, operates, or manages a public
utility, is subject to the continuing jurisdiction and power of the
commission for the limited purpose of monitoring and enforcing
conditions in certain decisions of the commission authorizing the
formation of holding companies.  Because a violation of the Public
Utilities Act or an order of the commission is a crime under existing
law, the bill would impose a state-mandated local program by
creating a new crime.
   (3) This bill would delete provisions relative to the
restructuring of electrical service provided by publicly owned
electrical utilities.
  (4) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state.  Statutory provisions establish procedures for making that
reimbursement.  This bill would provide that no reimbursement is
required by this act for a specified reason. 
   Vote:  majority.  Appropriation:  no.  Fiscal committee:  
no   yes  . State-mandated local program:
 no   yes  .


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  
  SECTION 1.  Section 712 is added to the Public Utilities 

  SECTION 1.  Section 330 of the Public Utilities Code is repealed.
 
   330.  In order to provide guidance in carrying out this chapter,
the Legislature finds and declares all of the following:
   (a) It is the intent of the Legislature that a cumulative rate
reduction of at least 20 percent be achieved not later than April 1,
2002, for residential and small commercial customers, from the rates
in effect on June 10, 1996.  In determining that the April 1, 2002,
rate reduction has been met, the commission shall exclude the costs
of the competitively procured electricity and the costs associated
with the rate reduction bonds, as defined in Section 840.
   (b) The people, businesses, and institutions of California spend
nearly twenty-three billion dollars ($23,000,000,000) annually on
electricity, so that reductions in the price of electricity would
significantly benefit the economy of the state and its residents.
   (c) The Public Utilities Commission has opened rulemaking and
investigation proceedings with regard to restructuring California's
electric power industry and reforming utility regulation.
   (d) The commission has found, after an extensive public review
process, that the interests of ratepayers and the state as a whole
will be best served by moving from the regulatory framework existing
on January 1, 1997, in which retail electricity service is provided
principally by electrical corporations subject to an obligation to
provide ultimate consumers in exclusive service territories with
reliable electric service at regulated rates, to a framework under
which competition would be allowed in the supply of electric power
and customers would be allowed to have the right to choose their
supplier of electric power.
   (e) Competition in the electric generation market will encourage
innovation, efficiency, and better service from all market
participants, and will permit the reduction of costly regulatory
oversight.
   (f) The delivery of electricity over transmission and distribution
systems is currently regulated, and will continue to be regulated to
ensure system safety, reliability, environmental protection, and
fair access for all market participants.
   (g) Reliable electric service is of utmost importance to the
safety, health, and welfare of the state's citizenry and economy.  It
is the intent of the Legislature that electric industry
restructuring should enhance the reliability of the interconnected
regional transmission systems, and provide strong coordination and
enforceable protocols for all users of the power grid.
   (h) It is important that sufficient supplies of electric
generation will be available to maintain the reliable service to the
citizens and businesses of the state.
   (i) Reliable electric service depends on conscientious inspection
and maintenance of transmission and distribution systems.  To
continue and enhance the reliability of the delivery of electricity,
the Independent System Operator and the commission, respectively,
should set inspection, maintenance, repair, and replacement
standards.
   (j) It is the intent of the Legislature that California enter into
a compact with western region states.  That compact should require
the publicly and investor-owned utilities located in those states,
that sell energy to California retail customers, to adhere to
enforceable standards and protocols to protect the reliability of the
interconnected regional transmission and distribution systems.
   (k) In order to achieve meaningful wholesale and retail
competition in the electric generation market, it is essential to do
all of the following:
   (1) Separate monopoly utility transmission functions from
competitive generation functions, through development of independent,
third-party control of transmission access and pricing.
   (2) Permit all customers to choose from among competing suppliers
of electric power.
   (3) Provide customers and suppliers with open, nondiscriminatory,
and comparable access to transmission and distribution services.
   (l) The commission has properly concluded that:
   (1) This competition will best be introduced by the creation of an
Independent System Operator and an independent Power Exchange.
   (2) Generation of electricity should be open to competition.
   (3) There is a need to ensure that no participant in these new
market institutions has the ability to exercise significant market
power so that operation of the new market institutions would be
distorted.
   (4) These new market institutions should commence simultaneously
with the phase in of customer choice, and the public will be best
served if these institutions and the nonbypassable transition cost
recovery mechanism referred to in subdivisions (s) to (w), inclusive,
are in place simultaneously and no later than January 1, 1998.
   (m) It is the intention of the Legislature that California's
publicly owned electric utilities and investor-owned electric
utilities should commit control of their transmission facilities to
the Independent System Operator.  These utilities should jointly
advocate to the Federal Energy Regulatory Commission a pricing
methodology for the Independent System Operator that results in an
equitable return on capital investment in transmission facilities for
all Independent System Operator participants.
   (n) Opportunities to acquire electric power in the competitive
market must be available to California consumers as soon as
practicable, but no later than January 1, 1998, so that all customers
can share in the benefits of competition.
   (o) Under the existing regulatory framework, California's
electrical corporations were granted franchise rights to provide
electricity to consumers in their service territories.
   (p) Consistent with federal and state policies, California
electrical corporations invested in power plants and entered into
contractual obligations in order to provide reliable electrical
service on a nondiscriminatory basis to all consumers within their
service territories who requested service.
   (q) The cost of these investments and contractual obligations are
currently being recovered in electricity rates charged by electrical
corporations to their consumers.
   (r) Transmission and distribution of electric power remain
essential services imbued with the public interest that are provided
over facilities owned and maintained by the state's electrical
corporations.
   (s) It is proper to allow electrical corporations an opportunity
to continue to recover, over a reasonable transition period, those
costs and categories of costs for generation-related assets and
obligations, including costs associated with any subsequent
renegotiation or buyout of existing generation-related contracts,
that the commission, prior to December 20, 1995, had authorized for
collection in rates and that may not be recoverable in market prices
in a competitive generation market, and appropriate additions
incurred after December 20, 1995, for capital additions to generating
facilities existing as of December 20, 1995, that the commission
determines are reasonable and should be recovered, provided that the
costs are necessary to maintain those facilities through December 31,
2001.  In determining the costs to be recovered, it is appropriate
to net the negative value of above market assets against the positive
value of below market assets.
   (t) The transition to a competitive generation market should be
orderly, protect electric system reliability, provide the investors
in these electrical corporations with a fair opportunity to fully
recover the costs associated with commission approved
generation-related assets and obligations, and be completed as
expeditiously as possible.
   (u) The transition to expanded customer choice, competitive
markets, and performance based ratemaking as described in Decision
95-12-063, as modified by Decision 96-01-009, of the Public Utilities
Commission, can produce hardships for employees who have dedicated
their working lives to utility employment.  It is preferable that any
necessary reductions in the utility workforce directly caused by
electrical restructuring, be accomplished through offers of voluntary
severance, retraining, early retirement, outplacement, and related
benefits.  Whether workforce reductions are voluntary or involuntary,
reasonable costs associated with these sorts of benefits should be
included in the competition transition charge.
   (v) Charges associated with the transition should be collected
over a specific period of time on a nonbypassable basis and in a
manner that does not result in an increase in rates to customers of
electrical corporations.  In order to insulate the policy of
nonbypassability against incursions, if exemptions from the
competition transition charge are granted, a firewall shall be
created that segregates recovery of the cost of exemptions as
follows:
   (1) The cost of the competition transition charge exemptions
granted to members of the combined class of residential and small
commercial customers shall be recovered only from those customers.
   (2) The cost of the competition transition charge exemptions
granted to members of the combined class of customers other than
residential and small commercial customers shall be recovered only
from those customers.  The commission shall retain existing cost
allocation authority provided that the firewall and rate freeze
principles are not violated.
   (w) It is the intent of the Legislature to require and enable
electrical corporations to monetize a portion of the competition
transition charge for residential and small commercial consumers so
that these customers will receive rate reductions of no less than 10
percent for 1998 continuing through 2002.  Electrical corporations
shall, by June 1, 1997, or earlier, secure the means to finance the
competition transition charge by applying concurrently for financing
orders from the Public Utilities Commission and for rate reduction
bonds from the California Infrastructure and Economic Development
Bank.
   (x) California's public utility electrical corporations provide
substantial benefits to all Californians, including employment and
support of the state's economy.  Restructuring the electric services
industry pursuant to the act that added this chapter will continue
these benefits, and will also offer meaningful and immediate rate
reductions for residential and small commercial customers, and
facilitate competition in the supply of electric power. 

  SEC. 2.  Section 330 is added to the Public Utilities Code, to
read:
   330.  The act adding this section shall be known and cited as the
Repeal of Electricity Deregulation Act of 2003.  
  SEC. 3.  Section 330.1 is added to the Public Utilities Code, to
read:
   330.1.  The Legislature finds and declares all of the following:
   (a) Electricity is a unique good in modern society, not a simple
commodity.  Access to safe, reliable and affordable electrical
service is indispensable to the health, comfort, and well-being of
every person and business, and should be regarded as a right.
   (b) Unlike commodities, electricity must be manufactured at the
same instant it is consumed, it cannot be effectively stored, and
adequate generating and transmission capacity must be available at
all times to meet any level of demand at any location.  Shortages,
even for only a few minutes, cause blackouts.  This combination of
circumstances creates unparalleled opportunities for discrimination
and market manipulation.
   (c) Reliable electrical service is of utmost importance to the
safety, health, and welfare of the state's citizenry and economy.  It
is the intent of the Legislature that regulation of the electrical
industry should ensure the reliability of electrical service to
end-users, including the reliability of the interconnected regional
transmission systems, and provide strong coordination and enforceable
protocols for all users of the electricity grid.
   (d) Accordingly, the electrical industry must be comprehensively
regulated, by state and federal agencies for investor-owned
utilities, or by customer-controlled structures for public and
cooperative utilities.  The people of California expect effective
government and utility action to ensure reliable service at
reasonable rates.
   (e) Electrical service in California was restructured, or
deregulated, by orders of the California Public Utilities Commission
(CPUC) and the Federal Energy Regulatory Commission (FERC), and
actions of the California Independent System Operator pursuant to
FERC authorization, which ordered separation of the transmission and
generation elements of electrical service resulting in: (1)
divestiture of powerplants that had been built and dedicated to serve
California consumers at just and reasonable regulated rates; (2) the
separation of wholesale and retail transmission service by the
utility owners of the transmission facilities; (3) uses of the
transmission grid designed to enable sellers to undermine grid
reliability in the pursuit of high prices through the exercise of
market power.
   (f) The California Legislature confirmed the CPUC orders in some
respects through the enactment of Assembly Bill 1890 (Chapter 854 of
the Statutes of 1996), and in so doing, codified the basic tenants of
deregulation of electrical service in California.
   (g) As the direct result of deregulation of the electrical
industry, electricity markets in California have been grossly
dysfunctional for the past several years, characterized by
manipulation and abuse of seller market power in wholesale
electricity markets, withholding of vital energy supplies and other
illegal conduct that resulted in unjust and unreasonable wholesale
prices for electricity, causing elevated retail rates and repeated
actual and threatened interruptions of electrical service.
   (h) As the direct result of the deregulation of the wholesale
electrical market and the dysfunctional service arrangements,
residential and business consumers have endured the single largest
retail rate increase in the state's history, the state's largest
electrical corporation filed for bankruptcy, a second electrical
corporation was on the verge of insolvency, and reliable electrical
service was repeatedly jeopardized.  It will take many years for the
economic effects of these calamities to be overcome.
   (i) During the period from May 2000 through June 2001, California
was beset by actual and threatened blackouts due to supply
withholding by wholesale generators and electricity traders, using
both direct and indirect means to make electricity unavailable to the
people of California.
   (j) As the direct result of deregulation of the electrical supply
market, California was forced to rely entirely on unregulated private
investment decisions to provide sufficient electrical generation to
satisfy the demand for electricity.  As a direct result of
deregulation of the electrical supply market, California has
experienced the boom and bust cycle in the construction of new
electrical power plants that characterizes any unregulated market.
The wholesale electricity generation sector, subject only to
ineffective or nonexistant regulation by FERC, is now failing to
invest in new generation needed by California.
   (k) As the direct result of deregulation of the electrical utility
industry, California's traditional commitments to renewable energy
sources and investments in improved energy efficiency were weakened.
In order to fulfill the mandates of Senate Bill 1078 (Chapter 516 of
the Statutes of 2002), which is necessary to protect California's
environment, public utilities must be able to implement the
California Renewables Portfolio Standard Program.
   (l) California electricity consumers will inevitably provide the
ultimate credit support for any new investment in facilities for the
provision of electrical service in the future either through
rate-based utility investments or through long-term contracts with
other suppliers.  Protecting the interests of consumers by ensuring
that investment is prudent and cost effective should be the highest
priority of California regulatory policy and action.
   (m) It is in the state's interest to have functional creditworthy
public utilities providing essential electrical service to California
consumers at just and reasonable rates and to limit the exposure of
California consumers to dysfunctional deregulated wholesale
electricity markets.
   (n) Fully empowering public utilities and state entities and
agencies, including the CPUC, the California Consumer Power and
Conservation Financing Authority, the Independent System Operator,
and the Department of Water Resources to mitigate the exercise of
market power by sellers of electricity, reduce prices for
electricity, and restore electrical grid reliability, is in the
public interest.  To the extent that unbundling the elements of
electrical service, including transmission of electricity provided to
retail consumers, weakens the ability of California to protect its
people, such unbundling should be reconsidered and reversed.
   (o) Direct transactions, popularly termed direct access, as a
means for obtaining retail electrical service, has resulted in
massive subsidies of some retail customers by others.  Direct access
has resulted in increased costs for bundled service customers of
electrical corporations, while failing to provide justifiable reduced
costs for direct access customers.  Direct access undermines the
ability of public utilities to plan and invest to meet their
obligation to serve, by making uncertain the amount of customer
demand that must be met.  Direct access is a part of electrical
industry deregulation that should end as soon as existing direct
transaction contracts expire.
   (p) The expectations and assumption that deregulation of the
electrical utility industry would provide consumer benefits, enhanced
reliability, lower rates and technological innovation, have proven
illusory.  Instead, consumers have been and will be forced to pay for
massive costs incurred as a result of deregulation, and have
suffered from unprecedented degradation in the reliability of
electricity supply.  Public utilities have been forced to near
financial ruin or to seek bankruptcy protection.  Certain merchant
generators and marketers are in severe financial distress.
   (q) It is in the public interest to repudiate the failed policies
of electrical utility deregulation, and to assure the people of
California that electrical service will be reliable and affordable in
the future through effective regulation.  
  SEC. 4.  Section 330.2 is added to the Public Utilities Code, to
read:
   330.2.  It is the intent of the Legislature to achieve effective
regulation of California's public utilities and to pursue the
following policy goals:
   (a) Restore and affirm the public utility's obligation to serve
all of its customers.
   (b) Eliminate opportunities for market manipulation by stopping
electric plant divestiture and authorizing cost-of-service
construction of new electric plants and public utility wholesale
electricity procurement, while providing a fair opportunity for
reasonable returns on prudent investment.
   (c) Ensure electricity supply reliability and deter market
manipulation by establishing and enforcing effective standards for
maintenance and operation of electric plants that serve California.
   (d) Provide for cost-effective construction, operation and
maintenance of the electrical transmission grid and distribution
system in the public interest, while providing a fair opportunity for
reasonable returns on prudent investment.
   (e) Protect consumers from slamming, cramming and fraud by
requiring metering, billing, collection, and customer service to be
provided by public utilities, under regulation by the CPUC.
   (f) Preserve and renew the skilled public utility workforce by
ending employee layoffs, providing reasonable wages and working
conditions, and ensuring that the public utilities have an adequately
sized and trained workforce.
   (g) Establish a comprehensive integrated resource planning process
under regulation, in order to ensure resource adequacy, including
investing in cost-effective energy efficiency and conservation
programs, and increasing the proportion of electricity provided from
cost-effective renewable resources.
   (h) Simplify corporate ownership of electrical corporations by
requiring transparent forms of corporate ownership of public
utilities, by improving accountability for holding company
requirements in state law and by seeking enforcement of the Public
Utilities Holding Company Act of 1935 (Ch. 2C (commencing with Sec.
79), Title 15, U.S.C.).
   (i) Provide for fair cost allocation among customers in just and
reasonable rates fixed through open public processes, not
discriminatory retail choice or direct access transactions.
   (j) Restore consumer and investor confidence in electrical
corporation financial soundness and pricing fairness by making costs
transparent and establishing and enforcing accounting standards.
   (k) Assure universal service by assuring affordable rates and,
among other measures, providing low-income discounts with effective
enrollment programs.
   (l) Provide an open regulatory forum where all persons affected by
public utility service and rates, can observe and participate in the
decisionmaking process.  
  SEC. 5.  Section 330.4 is added to the Public Utilities Code, to
read:
   330.4.  The actions of the commission pursuant to this part, as
they affect electrical service, shall be consistent with the findings
and declarations contained in this article.  
  SEC. 6.  Section 330.6 is added to the Public Utilities Code, to
read:
   330.6.  (a) Electrical corporations and gas corporations that
serve retail customers, because of their status as public utilities
under the California Constitution, have an obligation to provide
those customers with adequate service at just and reasonable rates.
   (b) The obligation of electrical corporations and gas
corporations, to provide adequate service at just and reasonable
rates, includes a duty of care, a duty of loyalty, a duty of
disclosure, and a duty to use best efforts by the corporation's
management, to maintain safe, healthful, and affordable basic service
for end-use customers, consistent with the statutes of the state and
the rules, regulations, decisions, and orders of the commission.
   (c) The commission, on behalf of end-use customers, shall ensure
that public utility employees and investors are afforded the means to
carry out this obligation to serve, specifically including
reasonable compensation for employees and fair sharing of risks and
rewards for investors.  
  SEC. 7.  Section 334 of the Public Utilities Code is repealed.
 
   334.  The Legislature finds and declares that in order to ensure
the success of electric industry restructuring, in the transition to
a new market structure it is important to ensure a reliable supply of
electricity.  Reliable electric service is of paramount importance
to the safety, health, and comfort of the people of California.
Transmission connections between electric utilities allow them to
share generation resources and reduce the number of powerplants
necessary to maintain a reliable system.  The
                             connections between utilities also
create exposure to events that can cause widespread and extended
transmission and service outages that reach far beyond the
originating utility service area.  California utilities and those in
the western United States voluntarily adhere to reliability standards
developed by the Western Systems Coordinating Council.  The economic
cost of extended electricity outages, such as those that occurred in
California and throughout the Western Systems Coordinating Council
on July 2, 1996, and August 10, 1996, to California's residential,
commercial, agricultural, and industrial customers is significant.
The proposed restructuring of the electricity industry would transfer
responsibility for ensuring short- and long-term reliability away
from electric utilities and regulatory bodies to the Independent
System Operator and various market-based mechanisms.  The Legislature
has an interest in ensuring that the change in the locus of
responsibility for reliability does not expose California citizens to
undue economic risk in connection with system reliability. 
  
  SEC. 8.  Section 335 of the Public Utilities Code is amended to
read: 
   335.  In order to ensure that the interests of the people of
California are served, a five-member Electricity Oversight Board is
hereby created as provided in Section 336.  For purposes of this
chapter, any reference to the Oversight Board shall mean the
Electricity Oversight Board.  Its functions shall be all of the
following:
   (a) To oversee the Independent System Operator  and the
Power Exchange  .
   (b)  To determine the composition and terms of service and
to exercise the exclusive right to decline to confirm the
appointments of specific members of the governing board of the Power
Exchange.
   (c)  To serve as an appeal board for majority decisions
of the Independent System Operator governing board, as they relate to
matters subject to exclusive state jurisdiction, as specified in
Section 339.  
   (d) Those members of the Power Exchange governing board whose
appointments the Oversight Board has the exclusive right to decline
to confirm include proposed governing board members representing
agricultural end users, industrial end users, commercial end users,
residential end users, end users at large, nonmarket participants,
and public interest groups.
   (e)  
   (c)  To investigate any matter related to the wholesale
market for electricity to ensure that the interests of California's
citizens and consumers are served, protected, and represented in
relation to the availability of  electric  
electrical  transmission and generation and related costs,
during periods of peak demand.   
  SEC. 9.  Section 338 of the Public Utilities Code is repealed.
 
   338.  The Oversight Board shall have the exclusive right to
approve procedures and the qualifications for Power Exchange
governing board members specified in subdivision (d) of Section 335,
all of whom shall be required to be electricity customers in the area
served by the Power Exchange.  The Power Exchange governing board
shall include, but not be limited to, representatives of
investor-owned electric distribution companies, publicly owned
electric distribution companies, nonutility generators, public buyers
and sellers, private buyers and sellers, industrial end-users,
commercial end-users, residential end-users, agricultural end-users,
public interest groups, and nonmarket participant representatives.
The structural composition of the Power Exchange governing board
existing on July 1, 1999, shall remain in effect until an agreement
with a participating state is legally in effect. However, prior to
such an agreement, California shall retain the right to change the
Power Exchange governing board into a nonstakeholder board.  In the
event of such a legislative change, revised bylaws shall be filed
with the Federal Energy Regulatory Commission under Section 205 of
the Federal Power Act (16 U.S.C.A.  Sec. 824d).   
  SEC. 10.  Section 341.1 of the Public Utilities Code is repealed.
 
   341.1.  Regulations adopted within 120 days of the effective date
of this section may be adopted as emergency regulations in accordance
with Chapter 3.5 (commencing with Section 11340) of the Government
Code, and for the purposes of that chapter, including Section 11349.6
of the Government Code, the adoption of the regulations shall be
considered by the Office of Administrative Law to be necessary for
the immediate preservation of the public peace, health, safety, and
general welfare.   
  SEC. 11.  Section 341.5 of the Public Utilities Code is repealed.
 
   341.5.  (a) The Independent System Operator and Power Exchange
bylaws shall contain provisions that identify those matters specified
in subdivision (b) of Section 339 as matters within state
jurisdiction.  The bylaws shall also contain provisions which state
that California's bylaws approval function with respect to the
matters specified in subdivision (b) of Section 339 shall not
preclude the Federal Energy Regulatory Commission from taking any
action necessary to address undue discrimination or other violations
of the Federal Power Act (16 U.S.C.A. Sec. 791a et seq.) or to
exercise any other commission responsibility under the Federal Power
Act.  In taking any such action, the Federal Energy Regulatory
Commission shall give due respect to California's jurisdictional
interests in the functions of the Independent System Operator and
Power Exchange and to attempt to accommodate state interests to the
extent those interests are not inconsistent with the Federal Energy
Regulatory Commission's statutory responsibilities.  The bylaws shall
state that any future agreement regarding the apportionment of the
Independent System Operator and Power Exchange board appointment
function among participating states associated with the expansion of
the Independent System Operator and Power Exchange into multistate
entities shall be filed with the Federal Energy Regulatory Commission
pursuant to Section 205 of the Federal Power Act (16 U.S.C.A. Sec.
824d).
   (b) Any necessary bylaw changes to implement the provisions of
Section 335, 337, 338, 339, or subdivision (a) of this section, or
changes required pursuant to an agreement as contemplated by
subdivision (a) of this section with a participating state for a
regional organization, shall be effective upon approval of the
respective governing boards and the Oversight Board and acceptance
for filing by the Federal Energy Regulatory Commission. 

  SEC. 12.  Section 346 of the Public Utilities Code is repealed.
 
   346.  The Independent System Operator shall immediately
participate in all relevant Federal Energy Regulatory Commission
proceedings.  The Independent System Operator shall ensure that
additional filings at the Federal Energy Regulatory Commission
request confirmation of the relevant provisions of this chapter and
seek the authority needed to give the Independent System Operator the
ability to secure generating and transmission resources necessary to
guarantee achievement of planning and operating reserve criteria no
less stringent than those established by the Western Systems
Coordinating Council and the North American Electric Reliability
Council.   
  SEC. 13.  Section 348 of the Public Utilities Code is repealed.
 
   348.  The Independent System Operator shall adopt inspection,
maintenance, repair, and replacement standards for the transmission
facilities under its control no later than September 30, 1997.  The
standards, which shall be performance or prescriptive standards, or
both, as appropriate, for each substantial type of transmission
equipment or facility, shall provide for high quality, safe, and
reliable service.  In adopting its standards, the Independent System
Operator shall consider:  cost, local geography and weather,
applicable codes, national electric industry practices, sound
engineering judgment, and experience.  The Independent System
Operator shall also adopt standards for reliability, and safety
during periods of emergency and disaster.  The Independent System
Operator shall report to the Oversight Board, at such times as the
Oversight Board may specify, on the development and implementation of
the standards in relation to facilities under the operational
control of the Independent System Operator.  The Independent System
Operator shall require each transmission facility owner or operator
to report annually on its compliance with the standards.  That report
shall be made available to the public.   
  SEC. 14.  Section 350 of the Public Utilities Code is repealed.
 
   350.  The Independent System Operator, in consultation with the
California Energy Resources Conservation and Development Commission,
the Public Utilities Commission, the Western Systems Coordinating
Council, and concerned regulatory agencies in other western states,
shall within six months after the Federal Energy Regulatory
Commission approval of the Independent System Operator, provide a
report to the Legislature and to the Oversight Board that does the
following:
   (a) Conducts an independent review and assessment of Western
Systems Coordinating Council operating reliability criteria.
   (b) Quantifies the economic cost of major transmission outages
relating to the Pacific Intertie, Southwest Power Link, DC link, and
other important high voltage lines that carry power both into and
from California.
   (c) Identifies the range of cost-effective options that would
prevent or mitigate the consequences of major transmission outages.
   (d) Identifies communication protocols that may be needed to be
established to provide advance warning of incipient problems.
   (e) Identifies the need for additional generation reserves and
other voltage support equipment, if any, or other resources that may
be necessary to carry out its functions.
   (f) Identifies transmission capacity additions that may be
necessary at certain times of the year or under certain conditions.
   (g) Assesses the adequacy of current and prospective institutional
provisions for the maintenance of reliability.
   (h) Identifies mechanisms to enforce transmission right-of-way
maintenance.
   (i) Contains recommendations regarding cost-beneficial
improvements to electric system reliability for the citizens of
California.   
  SEC. 15.  Section 352 of the Public Utilities Code is amended to
read: 
   352.  The Independent System Operator may not enter into a
multistate  entity or a regional organization as authorized
in Section 359   regional transmission organization
 unless that entry is approved by the Oversight Board  and
the Legislature by concurrent resolution  .   
  SEC. 16.  Section 355 of the Public Utilities Code is repealed.
 
   355.  The Power Exchange shall provide an efficient competitive
auction, open on a nondiscriminatory basis to all suppliers, that
meets the loads of all exchange customers at efficient prices.
  
  SEC. 17.  Section 356 of the Public Utilities Code is repealed.
 
   356.  The Power Exchange governing board may form appropriate
technical advisory committees comprised of market and nonmarket
participants to advise the governing board on relevant issues.
  
  SEC. 18.  Section 359 of the Public Utilities Code is repealed.
 
   359.  (a) It is the intent of the Legislature to provide for the
evolution of the Independent System Operator and the Power Exchange
into regional organizations to promote the development of regional
electricity transmission markets in the western states and to improve
the access of consumers served by the Independent System Operator
and the Power Exchange to those markets.
   (b) The preferred means by which the voluntary evolution described
in subdivision (a) should occur is through the adoption of a
regional compact or other comparable agreement among cooperating
party states, the retail customers of which states would reside
within the geographic territories served by the Independent System
Operator and the Power Exchange.
   (c) The agreement described in subdivision (b) should provide for
all of the following:
   (1) An equitable process for the appointment or confirmation by
party states of members of the governing boards of the Independent
System Operator and the Power Exchange.
   (2) A respecification of the size, structure, representation,
eligible membership, nominating procedures, and member terms of
service of the governing boards of the Independent System Operator
and the Power Exchange.
   (3) Mechanisms by which each party state, jointly or separately,
can oversee effectively the actions of the Independent System
Operator and the Power Exchange as those actions relate to the
assurance of electricity system reliability within the party state
and to matters that affect electricity sales to the retail customers
of the party state or otherwise affect the general welfare of the
electricity consumers and the general public of the party state.
   (4) The adherence by publicly owned and investor-owned utilities
located in party states to enforceable standards and protocols to
protect the reliability of the interconnected regional transmission
and distribution systems.   
  SEC. 19.  Section 360 of the Public Utilities Code is repealed.
 
   360.  The commission shall ensure that existing, and if necessary,
additional filings at the Federal Energy Regulatory Commission
request confirmation of the relevant provisions of this chapter and
seek the authority needed to give the Independent System Operator the
ability to secure generating and transmission resources necessary to
guarantee achievement of planning and operating reserve criteria no
less stringent than those established by the Western Systems
Coordinating Council and the North American Electric Reliability
Council.   
  SEC. 20.  Section 361 of the Public Utilities Code is repealed.
 
   361.  The commission shall ensure that any funds secured by the
restructuring trusts established for the purposes of developing the
Independent System Operator and the Power Exchange shall be placed at
the disposal of the Independent System Operator and the Power
Exchange respectively.   
  SEC. 21.  Section 364 of the Public Utilities Code is amended to
read: 
   364.  (a) The commission shall adopt  and periodically review
and update  inspection, maintenance, repair, and replacement
standards for the distribution  and transmission  systems of
investor-owned electric utilities  no later than March 31,
1997  .  The standards  , which shall be performance
or prescriptive standards, or both, as appropriate,  for
each substantial type of distribution  and transmission 
equipment or facility, shall provide for high quality, safe and
reliable service.
   (b) In setting its standards, the commission shall consider:
cost, local geography and weather, applicable codes, national
electric industry practices, sound engineering judgment, and
experience.  The commission shall also adopt standards for operation,
reliability, and safety during periods of emergency and disaster.
The commission shall require each utility to report annually on its
compliance with the standards.  That report shall be made available
to the public.
   (c) The commission shall conduct a review to determine whether the
standards prescribed in this section have been met.  If the
commission finds that the standards have not been met, the commission
may order appropriate sanctions, including penalties in the form of
rate reductions or monetary fines.  The review shall be performed
after every major outage.  Any money collected pursuant to this
subdivision shall be used to offset funding for the California
Alternative Rates for Energy Program.   
  SEC. 22.  Section 365 of the Public Utilities Code is repealed.
 
   365.  The actions of the commission pursuant to this chapter shall
be consistent with the findings and declarations contained in
Section 330.  In addition, the commission shall do all of the
following:
   (a) Facilitate the efforts of the state's electrical corporations
to develop and obtain authorization from the Federal Energy
Regulatory Commission for the creation and operation of an
Independent System Operator and an independent Power Exchange, for
the determination of which transmission and distribution facilities
are subject to the exclusive jurisdiction of the commission, and for
approval, to the extent necessary, of the cost recovery mechanism
established as provided in Sections 367 to 376, inclusive.  The
commission shall also participate fully in all proceedings before the
Federal Energy Regulatory Commission in connection with the
Independent System Operator and the independent Power Exchange, and
shall encourage the Federal Energy Regulatory Commission to adopt
protocols and procedures that strengthen the reliability of the
interconnected transmission grid, encourage all publicly owned
utilities in California to become full participants, and maximize
enforceability of such protocols and procedures by all market
participants.
   (b) (1) Authorize direct transactions between electricity
suppliers and end use customers, subject to implementation of the
nonbypassable charge referred to in Sections 367 to 376, inclusive.
Direct transactions shall commence simultaneously with the start of
an Independent System Operator and Power Exchange referred to in
subdivision (a).  The simultaneous commencement shall occur as soon
as practicable, but no later than January 1, 1998.  The commission
shall develop a phase-in schedule at the conclusion of which all
customers shall have the right to engage in direct transactions.  Any
phase-in of customer eligibility for direct transactions ordered by
the commission shall be equitable to all customer classes and
accomplished as soon as practicable, consistent with operational and
other technological considerations, and shall be completed for all
customers by January 1, 2002.
   (2) Customers shall be eligible for direct access irrespective of
any direct access phase-in implemented pursuant to this section if at
least one-half of that customer's electrical load is supplied by
energy from a renewable resource provider certified pursuant to
Section 383, provided however that nothing in this section shall
provide for direct access for electric consumers served by municipal
utilities unless so authorized by the governing board of that
municipal utility.   
  SEC. 23.  Section 365.5 of the Public Utilities Code is repealed.
 
   365.5.  Nothing in this chapter shall prevent the commission from
exercising its authority to investigate a process for certification
and regulation of the rates, charges, terms, and conditions of
default service.  If the commission determines that a process for
certification and regulation of default service is in the public
interest, the commission shall submit its findings and
recommendations to the Legislature for approval.   
  SEC. 24.  Section 366 of the Public Utilities Code is repealed.
 
   366.  (a) The commission shall take actions as needed to
facilitate direct transactions between electricity suppliers and
end-use customers.  Customers shall be entitled to aggregate their
electrical loads on a voluntary basis, provided that each customer
does so by a positive written declaration.  If no positive
declaration is made by a customer, that customer shall continue to be
served by the existing electrical corporation or its successor in
interest, except aggregation by community choice aggregators,
accomplished pursuant to Section 366.2.
   (b) Aggregation of customer electrical load shall be authorized by
the commission for all customer classes, including, but not limited,
to small commercial or residential customers.  Aggregation may be
accomplished by private market aggregators, special districts, or on
any other basis made available by market opportunities and agreeable
by positive written declaration by individual consumers, except
aggregation by community choice aggregators, which shall be
accomplished pursuant to Section 366.2.   
  SEC. 25.  Section 366 is added to the Public Utilities Code, to
read:
   366.  (a) It is the intention of the legislature to terminate
direct transactions.
   (b) Each customer within the geographical distribution area of an
electrical corporation, that purchases electricity at retail, shall
be served by the electrical corporation or its successor in interest,
except as provided in Sections 366.1 and 366.2.
   (c) If a customer was served by an electric service provider on
April 1, 2003, the customer shall continue to be served by that
electric service provider until the expiration of the customer's
current contract, without extension.  Thereafter, the customer shall
be served by the electrical corporation that provides distribution
service.
   (d) A customer that elects to continue purchasing electricity from
an electric service provider pursuant to subdivision (c), shall
supply the commission with a confidential copy of its current direct
transaction contract.
   (e) Any customer that the commission has determined in Decision
02-11-022, is responsible to pay a cost recovery surcharge as a
condition for purchasing electricity pursuant to a direct
transaction, shall continue to pay the cost recovery surcharge until
full collection is achieved.
   (f) The commission shall report to the Legislature by July 1,
2004, all of the following:
   (1) Each customer electing to continue purchasing electricity from
an electric service provider pursuant to subdivision (c), identified
numerically.
   (2) The electrical load serviced under each direct transaction
contract.
   (3) The expiration date of each direct transaction contract.
   (g) The commission shall, within 30 days after the expiration of
all direct transaction contracts, report to the Legislature
confirming that direct transactions have terminated.  
  SEC. 26.  Section 366.5 of the Public Utilities Code is repealed.
 
   366.5.  (a) No change in the aggregator or supplier of electric
power for any small commercial customer may be made until one of the
following means of confirming the change has been completed:
   (1) Independent third-party telephone verification.
   (2) Receipt of a written confirmation received in the mail from
the consumer after the consumer has received an information package
confirming the agreement.
   (3) The customer signs a document fully explaining the nature and
effect of the change in service.
   (4) The customer's consent is obtained through electronic means,
including, but not limited to, computer transactions.
   (b) No change in the aggregator or provider of electric power for
any residential customer may be made over the telephone until the
change has been confirmed by an independent third-party verification
company, as follows:
   (1) The third-party verification company shall meet each of the
following criteria:
   (A) Be independent from the entity that seeks to provide the new
service.
   (B) Not be directly or indirectly managed, controlled, or
directed, or owned wholly or in part, by an entity that seeks to
provide the new service or by any corporation, firm, or person who
directly or indirectly manages, controls, or directs, or owns more
than 5 percent of the entity.
   (C) Operate from facilities physically separate from those of the
entity that seeks to provide the new service.
   (D) Not derive commission or compensation based upon the number of
sales confirmed.
   (2) The entity seeking to verify the sale shall do so by
connecting the resident by telephone to the third-party verification
company or by arranging for the third-party verification company to
call the customer to confirm the
         sale.
   (3) The third-party verification company shall obtain the customer'
s oral confirmation regarding the change, and shall record that
confirmation by obtaining appropriate verification data.  The record
shall be available to the customer upon request.  Information
obtained from the customer through confirmation shall not be used for
marketing purposes.  Any unauthorized release of this information is
grounds for a civil suit by the aggrieved resident against the
entity or its employees who are responsible for the violation.
   (4) Notwithstanding paragraphs (1), (2), and (3), an aggregator or
provider of electric power shall not be required to comply with
these provisions when the customer directly calls an aggregator or
provider of electric power to change service providers.  However, an
aggregator or provider of electric power shall not avoid the
verification requirements by asking a customer to contact an
aggregator or provider of electric power directly to make any change
in the service provider.
   (c) No change in the aggregator or provider of electric power for
any residential customer may be made via an Internet transaction, in
which the customer accesses the website of the aggregator or
provider, unless both of the following occur with respect to
confirming the change:
   (1) In addition to any other information gathered in the course of
the transaction, the customer shall be asked to read and respond to
a separate screen that states, in easily legible text, the following:

   "I acknowledge that in entering this transaction I am voluntarily
choosing to change the entity that supplies me with my electric
power."
   (2) The separate screen shall offer the customer the option to
complete or terminate the transaction.
   (d) (1) No change in the aggregator or provider of electric power
for any residential customer may be made via a written transaction
unless the change has been confirmed, as provided in this
subdivision.  In order to comply with this subdivision, in addition
to any other information gathered in the course of the transaction,
and in addition to any other signature required, the customer shall
be asked to sign and date a document separate from that written
transaction, containing the following words printed in 10-point type
or larger:
   "I acknowledge that in signing this contract or agreement, I am
voluntarily choosing to change the entity that supplies me with
electric power."
   (2) The acknowledgment document described in paragraph (1) may not
be included with a check or in connection with a sweepstakes
solicitation.
   (e) Any aggregator or provider of electric power offering
electricity service to residential and small commercial customers
that switches the electric service of a customer without the customer'
s consent shall be liable to the aggregator or provider of electric
power offering electricity services previously selected by the
customer in an amount equal to all charges paid by the customer after
the violation and shall refund to the customer any amount in excess
of the amount that the customer would have been obligated to pay had
the customer not been switched.
   (f) An aggregator or provider of electric power shall keep a
record of the confirmation of a change pursuant to subdivision (b),
(c), or (d) for two years from the date of that confirmation, and
shall make those records available, upon request, to the customer and
to the commission in the course of a commission investigation of a
customer complaint or an investigation pursuant to subdivision (c) of
Section 394.2.
   (g) Public agencies are exempt from this section to the extent
they are serving customers within their jurisdiction.
   (h) Notwithstanding subdivisions (c) and (d), the commission may
require third-party verification for all residential changes to
electric service providers if it finds that the application of
subdivisions (c) and (d) results in the unauthorized changing of a
customer's electric service provider.
   (i) An electrical corporation is exempt from this section for
customers that default to the service of the electrical corporation.

   (j) Electric power sold to customers pursuant to Section 80100 of
the Water Code is not subject to this section.   
  SEC. 27.  Section 367 of the Public Utilities Code is amended to
read: 
   367.  The commission shall identify and determine those costs and
categories of costs for generation-related assets and obligations,
consisting of generation facilities, generation-related regulatory
assets, nuclear settlements, and power purchase contracts, including,
but not limited to, restructurings, renegotiations or terminations
thereof approved by the commission, that were being collected in
commission-approved rates on December 20, 1995, and that may become
uneconomic as a result of a competitive generation market, in that
these costs may not be recoverable in market prices in a competitive
market, and appropriate costs incurred after December 20, 1995, for
capital additions to generating facilities existing as of December
20, 1995, that the commission determines are reasonable and should be
recovered, provided that these additions are necessary to maintain
the facilities through December 31, 2001.  These uneconomic costs
shall include transition costs as defined in subdivision (f) of
Section 840, and shall be recovered from all customers or in the case
of fixed transition amounts, from the customers specified in
subdivision (a) of Section 841, on a nonbypassable basis and shall:
   (a) Be amortized over a reasonable time period, including
collection on an accelerated basis, consistent with not increasing
rates for any rate schedule, contract, or tariff option above the
levels in effect on June 10, 1996, provided that, the recovery shall
not extend beyond December 31, 2001, except as follows:
   (1) Costs associated with employee-related transition costs as set
forth in subdivision (b) of Section 375 shall continue until fully
collected; provided, however, that the cost collection shall not
extend beyond December 31, 2006.
   (2) Power purchase contract obligations shall continue for the
duration of the contract.  Costs associated with any buy-out,
buy-down, or renegotiation of the contracts shall continue to be
collected for the duration of any agreement governing the buy-out,
buy-down, or renegotiated contract; provided, however, no power
purchase contract shall be extended as a result of the buy-out,
buy-down, or renegotiation.
   (3)  Costs associated with contracts approved by the
commission to settle issues associated with the Biennial Resource
Plan Update may be collected through March 31, 2002; provided that
only 80 percent of the balance of the costs remaining after December
31, 2001, shall be eligible for recovery.
   (4)  Nuclear incremental cost incentive plans for the San
Onofre nuclear generating station shall continue for the full term
as authorized by the commission in Decision 96-01-011 and Decision
96-04-059; provided that the recovery shall not extend beyond
December 31, 2003.  
   (5) Costs associated with the exemptions provided in subdivision
(a) of Section 374 may be collected through March 31, 2002, provided
that only fifty million dollars ($50,000,000) of the balance of the
costs remaining after December 31, 2001, shall be eligible for
recovery.
   (6)  
   (4)  Fixed transition amounts, as defined in subdivision (d)
of Section 840, may be recovered from the customers specified in
subdivision (a) of Section 841 until all rate reduction bonds
associated with the fixed transition amounts have been paid in full
by the financing entity.
   (b)  Be based on a calculation mechanism that nets the
negative value of all above market utility-owned generation-related
assets against the positive value of all below market utility-owned
generation related assets.  For those assets subject to valuation,
the valuations used for the calculation of the uneconomic portion of
the net book value shall be determined not later than December 31,
2001, and shall be based on appraisal, sale, or other divestiture.
The commission's determination of the costs eligible for recovery and
of the valuation of those assets at the time the assets are exposed
to market risk or retired, in a proceeding under Section 455.5, 851,
or otherwise, shall be final, and notwithstanding Section 1708 or any
other provision of law, may not be rescinded, altered or amended.
   (c) Be limited in the case of utility-owned fossil generation to
the uneconomic portion of the net book value of the fossil capital
investment existing as of January 1, 1998, and appropriate costs
incurred after December 20, 1995, for capital additions to generating
facilities existing as of December 20, 1995, that the commission
determines are reasonable and should be recovered, provided that the
additions are necessary to maintain the facilities through December
31, 2001.  All "going forward costs" of fossil plant operation,
including operation and maintenance, administrative and general, fuel
and fuel transportation costs, shall be recovered solely from
independent Power Exchange revenues or from contracts with the
Independent System Operator, provided that for the purposes of this
chapter, the following costs may be recoverable pursuant to this
section:
   (1) Commission-approved operating costs for particular
utility-owned fossil powerplants or units, at particular times when
reactive power/voltage support is not yet procurable at market-based
rates in locations where it is deemed needed for the reactive
power/voltage support by the Independent System Operator, provided
that the units are otherwise authorized to recover market-based rates
and provided further that for an electrical corporation that is also
a gas corporation and that serves at least four million customers as
of December 20, 1995, the commission shall allow the electrical
corporation to retain any earnings from operations of the reactive
power/voltage support plants or units and shall not require the
utility to apply any portions to offset recovery of transition costs.
  Cost recovery under the cost recovery mechanism shall end on
December 31, 2001.
   (2) An electrical corporation that, as of December 20, 1995,
served at least four million customers, and that was also a gas
corporation that served less than four thousand customers, may
recover, pursuant to this section, 100 percent of the uneconomic
portion of the fixed costs paid under fuel and fuel transportation
contracts that were executed prior to December 20, 1995, and were
subsequently determined to be reasonable by the commission, or 100
percent of the buy-down or buy-out costs associated with the
contracts to the extent the costs are determined to be reasonable by
the commission.
   (d) Be adjusted throughout the period through March 31, 2002, to
track accrual and recovery of costs provided for in this subdivision.
  Recovery of costs prior to December 31, 2001, shall include a
return as provided for in Decision 95-12-063, as modified by Decision
96-01-009, together with associated taxes.
   (e) (1) Be allocated among the various classes of customers, rate
schedules, and tariff options to ensure that costs are recovered from
these classes, rate schedules, contract rates, and tariff options,
including self-generation deferral, interruptible, and standby rate
options in substantially the same proportion as similar costs are
recovered as of June 10, 1996, through the regulated retail rates of
the relevant electric utility, provided that there   (1)
There  shall be a firewall segregating the recovery of the
costs of competition transition charge exemptions such that the costs
of competition transition charge exemptions granted to members of
the combined class of residential and small commercial customers
shall be recovered only from these customers, and the costs of
competition transition charge exemptions granted to members of the
combined class of customers, other than residential and small
commercial customers, shall be recovered only from these customers.
   (2)  Individual customers shall not experience rate
increases as a result of the allocation of transition costs.
However, customers who elect to purchase energy from suppliers other
than the Power Exchange through a direct transaction, may incur
increases in the total price they pay for electricity to the extent
the price for the energy exceeds the Power Exchange price.
   (3)  The commission shall retain existing cost allocation
authority, provided the firewall and rate freeze principles are not
violated.   
  SEC. 28.  Section 367.5 is added to the Public Utilities Code, to
read:
   367.5.  (a) The commission shall establish a Ratepayer Refund
Account for each electrical corporation.  All refunds recovered by an
electrical corporation, either directly or indirectly by way of
offset against amounts otherwise owed by the electrical corporation,
resulting from any litigation or agreement relative to the charging
of excessive costs for wholesale electricity by electrical
generators, traders, and suppliers that have been recovered, or are
recoverable, from ratepayers in commission-approved rates, shall be
credited to the electrical corporation's Ratepayer Refund Account.
   (b) All funds held by an electrical corporation that are required
by this section to be credited to the Ratepayer Refund Account of the
corporation are the property of the ratepayers and shall be held in
trust on their behalf.
  SEC. 29.  Section 367.7 of the Public Utilities Code is repealed.
 
   367.7.  (a) It is the intent of the Legislature in enacting this
section to ensure that individual customers do not experience rate
increases as a result of the allocation of transition costs, in
accordance with paragraph (2) of subdivision (e) of Section 367.
   (b) The commission shall implement a methodology whereby the Power
Exchange energy credit for a customer with a meter installed on or
after June 30, 2000, that is capable of recording hourly data is
calculated based on the actual hourly data for that customer.  The
Power Exchange energy credit for a customer with a meter installed
before June 30, 2000, that is capable of recording hourly data shall,
at the election of the customer, on a one-time basis before June 30,
2000, be calculated based on either (1) the actual hourly data for
that customer or (2) the average load profile for that customer
class.  If the customer fails to make an election, that customer's
Power Exchange energy credit shall continue to be based on the
average load profile for that customer class.
   (c) Additional incremental billing costs incurred as a result of
the methodology implemented by the commission pursuant to subdivision
(b) may be recoverable through rates for that customer class, if the
commission finds that the costs are reasonable.
   (d) The methodology implemented by the commission pursuant to
subdivisions (b) and (c) shall not result in any shifts in cost
between customer classes and shall be consistent with the firewall
provision set forth in subdivision (e) of Section 367. 

  SEC. 30.  Section 370 of the Public Utilities Code is repealed.
 
   370.  The commission shall require, as a prerequisite for any
consumer in California to engage in direct transactions permitted in
Section 365, that beginning with the commencement of these direct
transactions, the consumer shall have an obligation to pay the costs
provided in Sections 367, 368, 375, and 376, and subject to the
conditions in Sections 371 to 374, inclusive, directly to the
electrical corporation providing electricity service in the area in
which the consumer is located.  This obligation shall be set forth in
the applicable rate schedule, contract, or tariff option under which
the customer is receiving service from the electrical corporation.
To the extent the consumer does not use the electrical corporation's
facilities for direct transaction, the obligation to pay shall be
confirmed in writing, and the customer shall be advised by any
electricity marketer engaged in the transaction of the requirement
that the customer execute a confirmation.  The requirement for
marketers to inform customers of the written requirement shall cease
on January 1, 2002.   
  SEC. 31.  Section 373 of the Public Utilities Code is repealed.
 
   373.  (a) Electrical corporations may apply to the commission for
an order determining that the costs identified in Sections 367, 368,
375, and 376 not be collected from a particular class of customer or
category of electricity consumption.
   (b) Subject to the fire wall specified in subdivision (e) of
Section 367, the provisions of this section and Sections 372 and 374
shall apply in the event the commission authorizes a nonbypassable
charge prior to the implementation of an Independent System Operator
and Power Exchange referred to in subdivision (a) of Section 365.
  
  SEC. 32.  Section 376 of the Public Utilities Code is repealed.
 
   376.  To the extent that the costs of programs to accommodate
implementation of direct access, the Power Exchange, and the
Independent System Operator, that have been funded by an electrical
corporation and have been found by the commission or the Federal
Energy Regulatory Commission to be recoverable from the utility's
customers, reduce an electrical corporation's opportunity to recover
its utility generation-related plant and regulatory assets by the end
of the year 2001, the electrical corporation may recover unrecovered
utility generation-related plant and regulatory assets after
December 31, 2001, in an amount equal to the utility's cost of
commission-approved or Federal Energy Regulatory Commission approved
restructuring-related implementation programs.  An electrical
corporation's ability to collect the amounts from retail customers
after the year 2001 shall be reduced to the extent the Independent
System Operator or the Power Exchange reimburses the electrical
corporation for the costs of any of these programs.   
  SEC. 33.  Section 377 of the Public Utilities Code is amended to
read: 
   377.  The commission shall  continue to  regulate
the facilities for the generation of electricity owned by any public
utility  prior to January 1, 1997, that are subject to
commission regulation until the owner of those facilities has applied
to the commission to dispose of those facilities and has been
authorized by the commission under Section 851 to undertake that
disposal   on a cost of service basis  .
Notwithstanding any other provision of law, no facility  or site
 for the generation of electricity owned by a public utility may
be disposed of prior to January 1,  2006   2010
 .  The commission shall ensure that public utility generation
assets remain dedicated  to service  for the benefit
of  California ratepayers   the electrical
corporations' bundled customers .   
  SEC. 34.  Section 378 of the Public Utilities Code is repealed.
 
   378.  The commission shall authorize new optional rate schedules
and tariffs, including new service offerings, that accurately reflect
the loads, locations, conditions of service, cost of service, and
market opportunities of customer classes and subclasses. 

  SEC. 35.  Section 379 of the Public Utilities Code is amended to
read: 
   379.  Nuclear decommissioning costs shall  not be part of
the costs described in Sections 367, 368, 375, and 376, but shall
 be recovered as a nonbypassable charge until  the
time as  the costs are fully recovered.  Recovery of
decommissioning costs may be accelerated to the extent possible.

  SEC. 36.  Section 389 of the Public Utilities Code is repealed.
 
   389.  (a) The Secretary of the California Environmental Protection
Agency, in consultation with interested stakeholders including
relevant state and federal agencies, boards, and commissions, shall
evaluate and recommend to the Legislature public policy strategies
that address the feasibility of shifting costs from electric utility
ratepayers, in whole or in part, to other classes of beneficiaries.
This evaluation also shall address the quantification of benefits
attributable to the solid-fuel biomass industry and implementation
requirements, including statutory amendments and transition period
issues that may be relevant, to bring about equitable and effective
allocation of solid-fuel biomass electricity costs that ensure the
retention of the economic and environmental benefits of the biomass
industry while promoting measurable reduction in real costs to
ratepayers.  This evaluation shall be in coordination with the
California Energy Resources Conservation and Development Commission's
efforts pursuant to subdivision (b) of Section 383, addressing
renewable policy implementation issues. The Secretary of the
California Environmental Protection Agency shall submit a final
report to the Legislature, using existing agency resources, prior to
March 31, 1997.
   (b) The Secretary of the California Environmental Protection
Agency, in consultation with relevant state and federal agencies,
boards, and commissions, and with representatives of the solid-fuel
biomass industry, shall prepare and submit to the Legislature an
annual report on the existence, status, and progress of any public
policy measures for cost-shifting developed as a result of the
recommendations made pursuant to subdivision (a), on or before March
31 of each year from 1999 to 2001, inclusive.  A report prepared
pursuant to this subdivision shall not exceed 10 pages. 

  SEC. 37.  Section 391 of the Public Utilities Code is repealed.
 
   391.  The Legislature finds and declares all of the following:
   (a) Electricity is essential to the health, safety, and economic
well-being of all California consumers.
   (b) The restructuring of the electricity industry will create a
new electricity market with new marketers and sellers offering new
goods and services, many of which may not be readily evaluated by the
average consumer.
   (c) It is important that these customers be protected from unfair
marketing practices and that market participants demonstrate their
creditworthiness and technical expertise in order to engage in power
sales to these members of the public.
   (d) Larger commercial and industrial customers are sophisticated
energy consumers that have adequate civil remedies and are adequately
protected by existing commercial law, as demonstrated by the absence
of significant amounts of contract litigation between commercial and
industrial natural gas users and natural gas marketers in
California.
   (e) It is important to create a market structure that will not
unduly burden new entrants into the competitive electric market, or
California may not receive the full benefits of reduced electricity
costs through competition.
   (f) It is appropriate to create a system of registration and
consumer protection for the electric industry, designed to ensure
sufficient protection for residential and small commercial consumers
while simplifying entry into the market for responsible entities
serving larger, more sophisticated customers.
   (g) It is the intent of the Legislature that:
   (1) Electricity consumers be provided with sufficient and reliable
information to be able to compare and select among products and
services provided in the electricity market.
   (2) Consumers be provided with mechanisms to protect themselves
from marketing practices that are unfair or abusive.
   (3) Pursuant to the authority granted to the commission in this
part as to registration and consumer protection matters, the
commission shall balance the need to maximize competition by reducing
barriers to entry into the small retail electricity procurement
market with the need to protect small consumers against deceptive,
unfair, or                                            abusive
business practices, or insolvency of the entity offering retail
electric service.
   (h) It is the intent of the Legislature in enacting this act to
further the policies of AB 1890 (Chapter 854, Statutes of 1996)
relating to electric industry restructuring.   
  SEC. 38.  Section 392 of the Public Utilities Code is amended to
read:
   392.   (a) (1)  Electrical corporations shall
disclose each component of the electrical bill as  follows:
   (A) The total charges associated with transmission and
distribution, including that portion comprising the research,
environmental, and low-income funds.
   (B) The total charges associated with generation, including the
competition transition charge.
   (2) Electrical corporations shall provide conspicuous notice that
if the customer elects to purchase electricity from another provider
that customer will continue to be liable for payment of the
competition transition charge.  This paragraph does not prohibit the
commission from requiring additional information.
   (b) Prior to the implementation of the competition transition
charge, electric corporations, in conjunction with the commission,
shall devise and implement a customer education program informing
customers of the changes to the electric industry.  The program shall
provide customers with information necessary to help them make
appropriate choices as to their electric service.  The education
program shall be subject to approval by the commission.
   (c) The standard bill format developed by the commission pursuant
to subdivision (e) of Section 394.4 shall also apply to electrical
corporations   directed by the commission  .   

  SEC. 39.  Section 393.1 is added to the Public Utilities Code, to
read:
   393.1.  The Legislature finds and declares all of the following:
   (a) Metering customer usage of electricity is an integral part of
the electricity distribution system, and is the responsibility of the
electrical corporation.
   (b) Accurately applying utility tariffs approved by the commission
and calculating a customer's bill is the responsibility of the
electrical corporation.
   (c) If electricity metering is performed by entities other than
the electrical corporation, it can create customer confusion, and can
create serious safety hazards for customers and utility employees.
   (d) Customers are entitled to have the electrical corporation
resolve all questions regarding the accuracy of bills, including the
accuracy of metering and correct application of approved utility
tariffs, subject to commission oversight.
   (e) To protect customers from fraud and abuse, and to enable
customers to easily resolve disputes concerning metering or billing,
those functions should be performed only by an electrical corporation
subject to regulation by the commission.  
  SEC. 40.  Section 393.2 is added to the Public Utilities Code, to
read:
   393.2.  (a) All metering of customer usage of electricity and
customer billing shall be performed by the electrical corporation.
   (b) No residential or small commercial customer may be required to
take service under a time-differentiated rate without the customer's
prior consent.
   (c) Nothing in this article limits the commission's power or
authority with respect to customer billing.  The commission may
require an electrical corporation to aggregate a customer's multiple
accounts into a single bill, so long as the cost for that activity is
recoverable in rates.  
  SEC. 41.  Section 397 of the Public Utilities Code is repealed.
 
   397.  (a) Notwithstanding subdivision (a) of Section 368, to
ensure the continued safe and reliable provision of electric service
during the transition to competition, and to limit the effect of fuel
price volatility in electric rates paid by California consumers, it
is in the public interest to allow an electrical corporation which is
also a gas corporation and served fewer than four million customers
as of December 20, 1995, to file with the commission a rate cap
mechanism which shall include a Fuel Price Index Mechanism requiring
limited adjustments in an electrical corporation's authorized System
Average Rate in effect on June 10, 1996, to reflect price changes in
the fuel market.  The commission shall authorize an electrical
corporation to implement a rate cap mechanism which includes a Fuel
Price Index Mechanism provided the following criteria are met:
   (1) The Fuel Price Index Mechanism shall be based on the Southern
California Border Index price for natural gas as published
periodically in Natural Gas Intelligence Magazine.  The "Starting
Point" of the Fuel Price Index Mechanism shall be defined as the
California Border Index price as published in Natural Gas
Intelligence for January 1, 1996.
   (2) The Fuel Price Index Mechanism shall include a "deadband"
defined as a price range for natural gas that is any price up to 10
percent higher, or lower, than the Starting Point.
   (3) The electrical corporation shall not file for a change in its
authorized System Average Rate unless the California Border Index
price, on a 12-month, rolling average basis, is outside the deadband.
  If the published California Border Index is outside of the
deadband, the electrical corporation shall increase, or decrease, its
authorized System Average Rate by an amount equal to the product of
25 percent multiplied by the percentage by which the 12-month rolling
average natural gas price is higher, or lower, than the deadband.
   (4) In no case shall an electrical corporation's authorized System
Average Rate under the Fuel Price Index Mechanism exceed the average
of the authorized system average rates for the two largest
electrical corporations as of June 10, 1996.
   (5) This section shall become inoperative on December 31, 2001.
  
  SEC. 42.  Section 454.1 of the Public Utilities Code, as added by
Chapter 1040 of the Statutes of 2000, is amended and renumbered to
read:  
   454.1.  
   454.6.   (a) Reasonable expenditures by transmission owners
that are electrical corporations to plan, design, and engineer
reconfiguration, replacement, or expansion of transmission facilities
are in the public interest and are deemed prudent if made for the
purpose of  facilitating competition in electric generation
markets, ensuring open access and comparable service  
providing lower cost delivery of electricity to ratepayers  , or
maintaining or enhancing reliability, whether or not these
expenditures are for transmission facilities that become operational.

   (b) The commission and the Electricity Oversight Board shall
jointly facilitate the efforts of the state's transmission owning
electrical corporations to obtain authorization from the Federal
Energy Regulatory Commission to recover reasonable expenditures made
for the purposes stated in subdivision (a).
   (c) Nothing in this section alters or affects the recovery of the
reasonable costs of other electric facilities in rates pursuant to
the commission's existing ratemaking authority under this code or
pursuant to the Federal Power Act (  41 Stat. 1063; 16 U.S.C.
Secs. 791a, et seq.   Ch. 12 (commencing with Section
791a), Title 16, U.S.C.  ).  The commission may periodically
review and adjust depreciation schedules and rates authorized for an
electric plant that is under the jurisdiction of the commission and
owned by electrical corporations and periodically review and adjust
depreciation schedules and rates authorized for a gas plant that is
under the jurisdiction of the commission and owned by gas
corporations, consistent with this code.   
  SEC. 43.  Section 454.10 is added to the Public Utilities Code, to
read:
   454.10.  (a) In order to ensure that service provided by
electrical corporations is adequate, the commission may require an
electrical corporation that provides distribution service to make
direct investments in, or contract with the California Consumer Power
and Conservation Financing Authority for, electric plants that are
dedicated to serve the customers connected to the electrical
corporation's distribution system or grid, consistent with the plan
approved by the commission pursuant to Section 454.5.
   (b) After a hearing, the commission shall approve rates sufficient
to afford the electrical corporation a reasonable opportunity to
recover its reasonable costs of operating, its reasonable investment
in, and a reasonable return on its investment in the electric plants,
in accordance with Sections 330.6, 377, 451, and 1005.5.
   (c) An electrical corporation may meet the obligations of this
section by contracting with or entering into projects for
construction of electric plants jointly with, without limitation, the
California Consumer Power and Conservation Financing Authority,
California municipalities, cooperatives, and joint powers
authorities.  
  SEC. 44.  Section 761.7 is added to the Public Utilities Code, to
read:
   761.7.  An electrical corporation, holding company as defined in
Section 79b(a)(7)(A) of Title 15 of the United States Code, or other
entity that owns, controls, operates, or manages a public utility
shall be subject to the jurisdiction, control, and regulation of the
commission for the limited purpose of monitoring and enforcing
conditions in commission decisions D.88-01-063, D.96-11-017,
D.99-04-068, D.95-05-021, D.95-12-018, and D.98-03-07.  
  SEC. 45.  Section 9600 of the Public Utilities Code is repealed.
 
   9600.  (a) It is the intent of the Legislature that California's
local publicly owned electric utilities and electric corporations
should commit control of their transmission facilities to the
Independent System Operator as described in Chapter 2.3 (commencing
with Section 330) of Part 1 of Division 1.  These utilities should
jointly advocate to the Federal Energy Regulatory Commission a
pricing methodology for the Independent System Operator that results
in an equitable return on capital investment in transmission
facilities for all Independent System Operator participants and is
based on the following principles:
   (1) Utility specific access charge rates as proposed in Docket No.
  EC96-19-000 as finally approved by the Federal Energy Regulatory
Commission reflecting the costs of that utility's transmission
facilities shall go into effect on the first day of the Independent
System Operator operation.  The utility specific rates shall honor
all of the terms and conditions of existing transmission service
contracts and shall recognize any wheeling revenues of existing
transmission service arrangements to the transmission owner.
   (2) (A) No later than two years after the initial operation of the
Independent System Operator, the Independent System Operator shall
recommend for adoption by the Federal Energy Regulatory Commission a
rate methodology determined by a decision of the Independent System
Operator governing board, provided that the decision shall be based
on principles approved by the governing board including, but not
limited to, an equitable balance of costs and benefits, and shall
define the transmission facility costs, if any, which shall be rolled
in to the transmission service rate and spread equally among all
Independent System Operator transmission users, and those
transmission facility costs, if any, which should be specifically
assigned to a specific utility's service area.
   (B) If there is no governing board decision, the rate methodology
shall be determined following a decision by the alternative dispute
resolution method set forth in the Independent System Operator
bylaws.
   (C) If no alternative dispute resolution decision is rendered,
then a default rate methodology shall be a uniform regional
transmission access charge and a utility specific local transmission
access charge, provided that the default rate methodology shall be
recommended for implementation upon termination of the cost recovery
plan set forth in Section 368 or no later than two years after the
initial operation of the Independent System Operator, whichever is
later.  For purposes of this paragraph, regional transmission
facilities are defined to be transmission facilities operating at or
above 230 kilovolts plus an appropriate percentage of transmission
facilities operating below 230 kilovolts; all other transmission
facilities shall be considered local.  The appropriate percentage of
transmission facilities described above shall be consistent with the
guidelines in Federal Energy Regulatory Commission Order No. 888 and
any exception approved by that commission.
   (3) If the rate methodology implemented as a result of a decision
by the Independent System Operator governing board or resulting from
the independent system operator alternative dispute resolution
process results in rates different than those in effect prior to the
decision for any transmission facility owner, the amount of any
differences between the new rates and the prior rates shall be
recorded in a tracking account to be recovered from customers and
paid to the appropriate transmission owners by the transmission
facility owner after termination of the cost recovery plan set forth
in Section 368.  The recovery and payments shall be based on an
amortization period not to exceed three years in the case of the
electrical corporations or five years in the case of the local
publicly owned electric utilities.
   (4) The costs of transmission facilities placed in service after
the date of initial implementation of the Independent System Operator
shall be recovered using the rate methodology in effect at the time
the facilities go into operation.
   (5) The electrical corporations and the local publicly owned
electric utilities shall jointly develop language for implementation
proposals to the Federal Energy Regulatory Commission based on these
principles.
   (6) Nothing in this section shall compel any party to violate
restrictions applicable to facilities financed with tax-exempt bonds
or contractual restrictions and covenants regarding use of
transmission facilities existing as of December 20, 1995.
   (b) Following a final Federal Energy Regulatory Commission
decision approving the Independent System Operator, no California
electrical corporation or local publicly owned electric utility shall
be authorized to collect any competition transition charge
authorized pursuant to this division and Chapter 2.3 (commencing with
Section 330) of Part 1 of Division 1 unless it commits control of
its transmission facilities to the Independent System Operator.
  
  SEC. 46.  Section 9601 of the Public Utilities Code is repealed.
 
   9601.  (a) Except with respect to supply options of the nature
specified in Section 218, with the exception of paragraph (3) of
subdivision (b) of that section, as it existed on December 20, 1995,
no person, corporation, electrical corporation, or local publicly
owned electric utility or other governmental entity other than a
retail customer's existing electric service provider as of December
20, 1995, shall provide partial or full electric service to a retail
customer of a local publicly owned electric utility unless the
customer first confirms in writing an obligation to pay, through
tariff or otherwise, to the utility currently providing electric
service, a nonbypassable generation-related severance fee or
transition charge established by the regulatory body for that
utility.  The severance fee or transition charge shall be paid
directly to the local publicly owned utility providing electricity
service in the service area in which the consumer is located.
   (b) Except as provided in subdivision (a) of Section 374, no local
publicly owned electric utility or other governmental entity shall
provide partial or full electric service to a retail customer of an
electrical corporation unless the customer of that electrical
corporation first confirms in writing an obligation to pay, through
tariff or otherwise, to the electrical corporation currently
providing electric service, a nonbypassable generation-related
transition charge established by the regulatory body for that
electrical corporation.  The charge shall be paid directly to the
electrical corporation providing electricity in the service area in
which the consumer is located.
   (c) No local publicly owned electric utility or electrical
corporation shall sell electric power to the retail customers of
another local publicly owned electric utility or electrical
corporation unless the first utility has agreed to let the second
utility make sales of electric power to the retail customers of the
first utility.   
  SEC. 47.  Section 9602 of the Public Utilities Code is repealed.
 
   9602.  (a) After a public hearing, the local regulatory body of
each local publicly owned electric utility shall determine whether it
will authorize direct transactions between electricity suppliers and
end use customers, subject to implementation of the nonbypassable
severance fee or transition charge referred to in Section 9603.
   (b) If the regulatory body authorizes direct transactions, a
phase-in of these transactions shall commence no later than the
latter of January 1, 2000, or two years after the start of the
phase-in of direct transactions by the electrical corporations
pursuant to subdivision (b) of Section 365, and shall be completed by
the later of December 31, 2010, or two years after the completion of
the phase-in by electrical corporations.
   (c) The regulatory body shall develop a phase-in schedule at the
conclusion of which all customers shall have the right to engage in
direct transactions.
   (d) Any phase-in of customer eligibility for direct transactions
ordered by the regulatory body shall be equitable to all customer
classes.
   (e) If the regulatory body does not authorize direct access as
contemplated in this section, then the publicly owned electric
utility shall not be eligible to recover the nonbypassable charge as
provided in Section 9603.   
  SEC. 48.  Section 9603 of the Public Utilities Code is repealed.
 
   9603.  (a) Not less than six months prior to the date of
implementation of direct transactions, the regulatory body shall
establish the nonbypassable generation-related severance fee or
transition charge which shall include, but shall not be limited to,
employee related transition costs incurred and projected for
severance, out placement, retraining, early retirement, and related
expenses for employees directly affected by restructuring.
   (b) The regulatory body of a local publicly owned electric
utility, prior to adopting any generation related severance fee or
transition charge, shall make available for public review the basis
for the severance fee or transition charge and shall hold at least
one public hearing.   
  SEC. 49.  Section 9604 of the Public Utilities Code is amended to
read: 
   9604.  For purposes of this division,  the following
definitions apply:
   (a) "Direct transaction" means a contract between one or more
electric generators, marketers, or brokers, public or private, of
electric power and one or more retail customers providing for the
purchase and sale of electric power and ancillary services.
   (b) "Service area" means an area in which, as of December 20,
1995, an investor-owned electric utility or a local publicly owned
electric utility was obligated to provide service.
   (c) "Severance fee" or "transition charge" for a local publicly
owned electric utility shall mean that charge or periodic charge
assessed to customers to recover the reasonable uneconomic portion of
costs associated with generation-related assets and obligations,
nuclear decommissioning, and capitalized energy efficiency investment
programs approved prior to August 15, 1996.
   (d) "Local   "local  publicly owned electric
utility" as used in this division means a municipality or municipal
corporation operating as a "public utility" furnishing electric
service as provided in Section 10001, a municipal utility district
furnishing electric service formed pursuant to Division 6 (commencing
with Section 11501), a public utility district furnishing electric
services formed pursuant to the Public Utility District Act set forth
in Division 7 (commencing with Section 15501), an irrigation
district furnishing electric services formed pursuant to the
Irrigation District Law set forth in Division 11 (commencing with
Section 20500) of the Water Code, or a joint powers authority that
includes one or more of these agencies and that owns generation or
transmission facilities, or furnishes electric services over its own
or its member's electric distribution system.   
  SEC. 50.  Section 9605 of the Public Utilities Code is repealed.
 
   9605.  (a) Nothing in this division or Chapter 2.3 (commencing
with Section 350) of Part 1 of Division 1 shall affect preexisting
ratemaking authority of a regulatory body of any local publicly owned
electric utility.
   (b) Nothing in this division shall modify or abrogate any
agreement, or any rights or obligations in any such agreement,
between retail electric service providers relating to service areas.

   (c) Nothing in this division shall limit or affect the statutory
rights of a local publicly owned electric utility to negotiate and
design rates for existing customers and new customers not choosing to
be served by an alternate supplier.
   (d) Nothing in this division shall limit electric supply options
within the service territory of a local publicly owned electric
utility to the extent the options are of the nature specified in
Section 218 as it existed on December 20, 1995, with the exception of
paragraph (3) of subdivision (b) of that section, and the imposition
of a severance fee or transition charge on customers electing those
options shall be prohibited whether the elections are made before or
after the availability of direct transactions within the service area
of the local publicly owned electric utility.   
  SEC. 51.  The provisions of this act are severable.  If any
provision of this act or its application is held invalid, that
invalidity shall not affect other provisions or applications that can
be given effect without the invalid provision or application.  

  SEC. 52.  No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.    Code, to read:
   712.  It is the intent of the Legislature, in subsequent
legislation, 56to repeal the provisions of Assembly Bill 1890
(Chapter 854, Statutes 1996).