BILL ANALYSIS                                                                                                                                                                                                    






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         |SENATE RULES COMMITTEE            |                       SB 1298|
         |Office of Senate Floor Analyses   |                              |
         |(916) 651-1520    Fax: (916)      |                              |
         |327-4478                          |                              |
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                                   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  








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           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  







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         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)







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         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


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