BILL ANALYSIS
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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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