BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
                              Senator Ben Hueso, Chair
                                2015 - 2016  Regular 

          Bill No:          SB 1298           Hearing Date:    4/19/2016
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          |Author:    |Hertzberg                                            |
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          |Version:   |2/19/2016    As Introduced                           |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Jay Dickenson                                        |
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          SUBJECT: Electrical restructuring:  financing orders

            DIGEST:  This bill extends, by one year, the authority of the  
          California Public Utilities Commission (CPUC) to issue financing  
          orders.

          ANALYSIS:
          
          Existing law:

          1)Authorizes CPUC, until December 31, 2016, to issue financing  
            orders, upon application of an electric utility (IOU), to  
            facilitate the provision, recovery, financing, or refinancing  
            of transition costs. 

          2)Defines "transition costs" to mean the costs, and categories  
            of costs, of an IOU for generation-related assets and  
            obligations approved by the CPUC that were being collected in  
            CPUC-approved rates on December 20, 1995, and that may become  
            uneconomic as a result of a competitive generation market.  

            (Public Utilities Code 840 et seq.)

          3)Authorizes the CPUC to enter into an agreement with the  
            Department of Water Resources (DWR) with respect to charges  
            for electric utility service, and states that the agreement  
            shall have the force and effect of a financing order adopted  
            in accordance Section 840 of the Public Utilities Code. (Water  
            Code 80110(d))

          This bill extends, from December 31, 2016, to December 31, 2017,  







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          the authority of the CPUC to issue financing orders, upon  
          application of an IOU, to facilitate the provision, recovery,  
          financing, or refinancing of transition costs.

          Background

          The hapless restructuring of California's electricity market in  
          the late 1990s and early 2000s presented IOUs with prospect of  
          the inability to recover from ratepayers the cost of  
          generation-related investments made by the IOUs prior to the  
          restructuring.  To ensure IOUs were not stuck with the costs of  
          these investments, statute authorizes an IOU to apply to the  
          CPUC to recover certain transition cost through fixed transition  
          amounts.  Statute conditions CPUC's approval of recovery of the  
          fixed transition amount upon a finding that the designation of  
          the fixed transition amounts, and issuance of rate reduction  
          bonds in connection with some or all of the fixed transition  
          amounts, would reduce rates that residential and small  
          commercial customers would have paid if the financing order were  
          not adopted. Statute specifies that these customers shall  
          continue to pay fixed transition amounts after December 31,  
          2001, until the bonds are paid in full by the financing entity.   
          The statutory mechanism by which CPUC authorizes the recovery of  
          such costs is known as a "financing order."  The CPUC's  
          authority to issue financing orders sunsets on December 31,  
          2017.

          During the energy crisis that followed restructuring of  
          California's electricity market, the DWR procured electricity on  
          behalf of the IOUs.  To cover the costs of this procurement, DWR  
          issued bonds, known as Electric Power Fund bonds.  Acting under  
          its authority to issue financing orders, the CPUC authorized the  
          IOUs to collect the cost of the Electric Power Fund bonds from  
          ratepayers.  Ratepayers will continue to pay the cost of the  
          bonds until fully paid, according to the CPUC, in 2022.

          According to CPUC, it has exercised its ability to issue  
          financing orders to authorize refinancing of Electric Power Fund  
          bonds at lower rates, thereby saving ratepayers money.  The CPUC  
          contends its authority to allow such refinancing is not directly  
          dependent upon the explicit statutory authority provided to CPUC  
          to issue financing orders.  This is because the Water Code  
          provides the CPUC the authority to enter into an agreement with  
          the DWR for electric utility service; however, the Water Code  
          explicitly ties this authority to the CPUC's authority, found in  








          SB 1298 (Hertzberg)                                Page 3 of ?
          
          
          the Public Utilities Code, to issue financing orders.  The CPUC  
          reasonably fears that it has no authority to refinance Electric  
          Power Fund bonds, absent its explicit authority to issue  
          financing orders.  This bill will lay the fear to rest, at least  
          for calendar year 2017.

          The author contends the CPUC needs extension of its authority to  
          issue financing orders for only one year.  This is because,  
          according to the author, the Electric Power Fund bonds retire in  
          2022; CPUC has no need to authorize refinancing of the bonds in  
          their final five years.  The CPUC, in contrast, expresses a  
          desire to see its authority to issue financing orders extended  
          to 2022.

          

          Prior/Related Legislation
          
          SB 697 (Hertzberg, Chapter 612, Statutes of 2015) extended the  
          bond authority sunset.

          SB 38 (Padilla, 2014) would have repealed or modified several  
          sections of the
          Public Utilities Code added in 1996 as part of statutes enacted  
          to restructure the electricity market.  The bill was vetoed.

          SB 1195 (Padilla, Statutes 2014) was chaptered with different  
          subject matter.  An earlier version of the bill included the  
          provisions of SB 38.

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          No


            SUPPORT:  

          California Public Utilities Commission (Source)

          OPPOSITION:

          None received

          ARGUMENTS IN SUPPORT:  According to the author, this bill  
          ensures that bonds can be refinanced at lower rates when they're  
          available, reducing costs to ratepayers.








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