BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
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|SB 1095 - Bowen |Hearing Date:May 11, 1999 | S|
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|As Amended:May 6, 1999 | | B|
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DESCRIPTION
This bill makes a statement of the Legislature's intent to
ensure that the California Public Utilities Commission
(CPUC) conducts an accurate calculation of electrical
restructuring transition costs and makes a technical change
to a related provision.
KEY QUESTION
Are transition costs well enough identified and accounted
for to ensure that ratepayers know what they are paying for
and when they'll finish paying?
BACKGROUND
Passage of AB 1890 (Brulte), Chapter 854, Statutes of 1996,
triggered a restructuring of the electricity generation
market over a four-year transition period. The transition
to a competitive generation market has included significant
divestiture of utility-owned generation facilities and
recovery of utilities' historic uneconomic investments
through a transition charge paid by customers.
To calculate the Competition Transition Charge (CTC), AB
1890 requires the negative value of above-market generation
assets to be netted against the positive value of
below-market generation assets. Whether assets are
retained or disposed of, their relative value must be
determined based on "appraisal, sale, or other divestiture"
by December 31, 2001. Aside from the value of generation
assets, utility transition costs include continuing
contracts to purchase power from non-utility generators
that are no longer economically competitive and costs
incurred as a consequence of the transition to competition,
such as employee retraining or severance.
Utilities' generation assets that have been valued by sale,
such as natural gas and geothermal power plants, have
generally sold for more than their "book value" - as much
as four times their book value. These
higher-than-anticipated values have allowed utilities to
recover their transition costs more quickly. The balance
of transition costs are recovered from customers via a line
item on their bill.
While the CTC is being collected, electric rates are frozen
at June 1996 levels, minus a 10% reduction, for residential
and small commercial customers. For most transition costs,
the collection period ends March 31, 2002. On this date,
or more likely before it if CTCs are paid early, the rate
freeze will be lifted and the share of transition costs
paid by customers will be significantly reduced
COMMENTS
1)Where are we ? The total amount of transition costs
remains uncertain, although estimates range as high as
$30 billion. The CPUC is in the process of defining and
accounting for costs that are eligible for recovery.
Meanwhile, one utility, San Diego Gas & Electric, has
announced that it will end its rate freeze and the
majority of its CTC collection on July 1. PG&E and
Southern California Edison are also expected to recover
their CTC prior to the 2002 deadline.
2)Further policy review will be needed . Should the
Committee approve this bill, it may wish to request the
author's commitment to return the bill to the Committee
for further review after more substantive provisions have
been added.
POSITIONS
Support:
None reported to Committee.
Oppose:
None reported to Committee.
Lawrence Lingbloom
SB 1095 Analysis
Hearing Date: May 11, 1999