BILL ANALYSIS                                                                                                                                                                                                    



                                                             


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|SENATE RULES COMMITTEE            |                  SB 1095|
|Office of Senate Floor Analyses   |                         |
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                       THIRD READING
                              

Bill No:  SB 1095
Author:   Bowen (D)
Amended:  5/6/99
Vote:     21

  
  SENATE ENERGY, U.&C. COMMITTEE  :  10-0, 5/11/99
AYES:  Bowen, Alarcon, Baca, Brulte, Hughes, Kelley,  
  Mountjoy, Peace, Solis, Speier
NOT VOTING:  Vasconcellos
 

  SUBJECT  :    Electrical restructuring

  SOURCE  :     Author

 
  DIGEST  :    This bill states legislative intent to ensure  
that the California Public Utilities Commission conducts an  
accurate calculation of electrical restructuring transition  
costs.

  ANALYSIS  :    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  
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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

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 to ensure an equitable and  
timely conclusion to the transition to the competitive  
generation of electricity and makes a technical change to a  
related provision.

  Comments
  
  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 and Electric, has announced that it  
will end its rate freeze and the majority of its CTC  
collection on July 1.  Pacific Gas and Electric and  







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Southern California Edison are also expected to recover  
their CTC prior to the 2002 deadline.

  FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
Local:  No


NC:sl  5/13/99   Senate Floor Analyses 

             SUPPORT/OPPOSITION:  NONE RECEIVED

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