BILL ANALYSIS                                                                                                                                                                                                    



                                                          SB 418
                                                          Page  1

Date of Hearing:   September 3, 1999

              ASSEMBLY COMMITTEE ON APPROPRIATIONS 
                    Carole Migden, Chairwoman

         SB 418 (Polanco) - As Amended: August 19, 1999 

Policy Committee:                              Utilities and  
Commerce     Vote:                             9-0

Urgency:     No                   State Mandated Local  
Program:NoReimbursable:            

  SUMMARY  :

  This bill, as proposed to be amended  , authorizes the Public  
Utilities Commission (PUC) to order any credit to ratepayers for  
the excess rate reduction bonds issued by San Diego Gas and  
Electric Company that the commission determines is fair and  
reasonable.

  FISCAL EFFECT  :

No fiscal impact on the PUC's operations.

  COMMENTS  :

1)  Background  .  As part of electrical restructuring-Chapter 854,  
  Statutes of 1996 (AB 1890, Brulte)-electric corporations were  
  required to provide residential and small commercial customers  
  with a 10% rate reduction until either March 31, 2002, or when  
  the PUC-authorized net costs of utility generation-related  
  assets and obligations were fully recovered, whichever came  
  first.  AB 1890 also authorized the electrical corporations to  
  finance the rate reduction through bonds that would be repaid  
  by utility ratepayers over a ten-year period.

  San Diego Gas & Electric (SDG&E) obtained PUC approval to  
  issue $658 million in rate reduction bonds to support its rate  
  reduction to its customers.  On June 30, 1999, SDB&E completed  
  its transition from a monopoly provider of service in a  
  regulated market to a fully competitive market.  Because SDG&E  
  completed the transition period early, a significant amount of  
  the bond proceeds originally thought necessary to finance the  
  rate reduction are not needed.  Under the terms of SDG&E's  








                                                          SB 418
                                                          Page  2

  financing order, the PUC ordered that SDG&E is obligated to  
  return any excess bond proceeds at its authorized rate of  
  return of 12.54 percent.  SDG&E asserts that because they are  
  not earning an amount equivalent to their rate of return for  
  the rate reduction bonds they should not be penalized and  
  required to use shareholder profits to make up the difference.

2)  Purpose  .  The proposed amendment, which would entirely replace  
  the current version of the bill, represents language  
  essentially agreed to by the sponsor-Sempra Energy (parent  
  company of SDG&E)-and the PUC.  The bill would authorize the  
  PUC to consider the issue raised by SDG&E and to determine  
  whether an alternative disposition of the excess rate  
  reduction bonds is appropriate. 

3)  Opposition  .  The Utility Reform Network (TURN) opposes the  
  amended version of the bill because they assert that complying  
  with the PUC's Financing Order (FO) provides the greatest  
  benefit to ratepayers.  TURN asserts that SDG&E's decision to  
  issue all of the rate reduction bonds at once was a decision  
  made at its own risk, thus the company should be required to  
  refund the bond in full compliance with the FO.

  Analysis Prepared by  :    Chuck Nicol / APPR. / (916)319-2081