BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 418 - Polanco
Hearing Date: September 9, 1999 S
As Amended: September 7, 1999 FISCAL
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DESCRIPTION
This bill provides the California Public Utilities
Commission (CPUC) with the flexibility to alter a previous
decision regarding the disposition of excess rate reduction
bond proceeds for the San Diego Gas and Electric Company
(SDG&E).
KEY QUESTION
Should the CPUC be given the flexibility to alter a prior
decision regarding the disposition of excess rate reduction
bond money by SDG&E?
BACKGROUND
As part of the recent electric industry restructuring,
investor-owned electric utilities (i.e. SDG&E) were
required to provide residential and small commercial
customers with a 10% rate reduction until either March 31,
2002 or whenever the utilities' stranded costs have been
recovered -- whichever comes first. The legislation
authorized the electric utilities to finance the rate
reduction through bonds that are repaid by the ratepayer
beneficiaries over a ten-year period.
SDG&E obtained CPUC approval to issue $658 million in rate
reduction bonds. Those bonds are now being repaid by
residential and small commercial customers via a
separately-stated charge on their monthly bill, known as
the Trust Transfer Amount. On June 30, 1999, SDG&E
completed the collection of its stranded costs. Because of
the early completion, $423 million of the rate reduction
bonds aren't needed. Simply returning the unused bond
money (i.e. prepaying the interest and principal, as in a
home mortgage) is not an option because the bonds are
non-callable. The CPUC's order approving the $658 million
bond issuance obligated SDG&E to return any excess bond
proceeds to ratepayers at its CPUC-authorized rate of
return of 12.54%. Pursuant to the electric restructuring
statutes (Public Utilities Code Section 841c), the CPUC's
order is "irrevocable." This bill permits the CPUC to
alter the terms of the order as it pertains to SDG&E so
that customers receive a fair and reasonable credit.
COMMENTS
1.This bill was referred to the committee pursuant to Rule
29.10.
2.This bill is sponsored by Sempra Energy, the corporate
parent of SDG&E. Sempra believes the bill is necessary
to give the CPUC the flexibility to alter its current
decision on the terms for refunding the excess bond
money. It argues that the 12.54% interest on the bonds
is punative and unreasonable because they are unable to
earn that rate of interest on the excess bond funds.
SDG&E's ability to complete the collection of its
stranded costs early was due to the unforseeable
circumstance where a buyer was willing to purchase an
SDG&E power plant at a huge premium. SDG&E, therefore,
argues that it should not be penalized for this
unforseeable, though fortunate, circumstance.
3.TURN and UCAN, representing San Diego ratepayers, oppose
the bill, believing that "a deal is a deal." Before
issuing its bonds, SDG&E knew that any excess bond
proceeds would cost it 12.54%, yet it chose to issue
those bonds anyway. To now come back and ask for that
rate to be lowered is simply taking away money from
ratepayers. TURN and UCAN further argue that SDG&E
earned far more than 12.54% because it used the excess
bond money to acquire energy assets in other states and
countries.
4.The CPUC is currently considering whether to change the
interest rate on the excess bond proceeds and in that
proceeding, SDG&E has suggested that the interest rate be
lowered to 9.5%. The CPUC is neutral on the bill,
believing SB 418 provides it with the latitude to change
the interest rate if it desires.
5.During the electric industry restructuring discussions,
it was generally believed that SDG&E would take the full
four-year transition period to collect its stranded
costs. That the collection was complete two-and-a-half
years early is a windfall to both the utility and its
ratepayers. The ideal circumstance would be to use the
bond proceeds to completely offset the future payments
made by residential and small commercial customers on the
bonds, but in any event, there must be a way to divvy up
the spoils of this happy circumstance. Giving the CPUC
the authority to alter its prior order would seem to be
the best way to facilitate this.
POSITIONS
Support:
Sempra Energy
Oppose:
TURN
UCAN
Randy Chinn
SB 418 Analysis
Hearing Date: September 9, 1999