BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1298| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1298 Author: Hertzberg (D) Introduced:2/19/16 Vote: 21 SENATE ENERGY, U. & C. COMMITTEE: 11-0, 4/19/16 AYES: Hueso, Morrell, Cannella, Gaines, Hertzberg, Hill, Lara, Leyva, McGuire, Pavley, Wolk SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: Electrical restructuring: financing orders SOURCE: California Public Utilities Commission 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 SB 1298 Page 2 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, 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 SB 1298 Page 3 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 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, 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.:YesLocal: No SUPPORT: (Verified5/17/16) SB 1298 Page 4 California Public Utilities Commission (source) OPPOSITION: (Verified5/17/16) 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. Prepared by:Jay Dickenson / E., U., & C. / (916) 651-4107 5/18/16 16:44:56 **** END ****