BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1298|
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THIRD READING
Bill No: SB 1298
Author: Hertzberg (D)
Introduced:2/19/16
Vote: 21
SENATE ENERGY, U. & C. COMMITTEE: 11-0, 4/19/16
AYES: Hueso, Morrell, Cannella, Gaines, Hertzberg, Hill, Lara,
Leyva, McGuire, Pavley, Wolk
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: Electrical restructuring: financing orders
SOURCE: California Public Utilities Commission
DIGEST: This bill extends, by one year, the authority of the
California Public Utilities Commission (CPUC) to issue financing
orders.
ANALYSIS:
Existing law:
1)Authorizes CPUC, until December 31, 2016, to issue financing
orders, upon application of an electric utility (IOU), to
facilitate the provision, recovery, financing, or refinancing of
transition costs.
2)Defines "transition costs" to mean the costs, and categories of
costs, of an IOU for generation-related assets and obligations
approved by the CPUC that were being collected in CPUC-approved
rates on December 20, 1995, and that may become uneconomic as a
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Page 2
result of a competitive generation market.
(Public Utilities Code §840 et seq.)
3)Authorizes the CPUC to enter into an agreement with the
Department of Water Resources (DWR) with respect to charges for
electric utility service, and states that the agreement shall
have the force and effect of a financing order adopted in
accordance Section 840 of the Public Utilities Code. (Water
Code §80110(d))
This bill extends, from December 31, 2016, to December 31, 2017,
the authority of the CPUC to issue financing orders, upon
application of an IOU, to facilitate the provision, recovery,
financing, or refinancing of transition costs.
Background
The hapless restructuring of California's electricity market in
the late 1990s and early 2000s presented IOUs with prospect of the
inability to recover from ratepayers the cost of
generation-related investments made by the IOUs prior to the
restructuring. To ensure IOUs were not stuck with the costs of
these investments, statute authorizes an IOU to apply to the CPUC
to recover certain transition cost through fixed transition
amounts. Statute conditions CPUC's approval of recovery of the
fixed transition amount upon a finding that the designation of the
fixed transition amounts, and issuance of rate reduction bonds in
connection with some or all of the fixed transition amounts, would
reduce rates that residential and small commercial customers would
have paid if the financing order were not adopted. Statute
specifies that these customers shall continue to pay fixed
transition amounts after December 31, 2001, until the bonds are
paid in full by the financing entity. The statutory mechanism by
which CPUC authorizes the recovery of such costs is known as a
"financing order." The CPUC's authority to issue financing orders
sunsets on December 31, 2017.
During the energy crisis that followed restructuring of
California's electricity market, the DWR procured electricity on
behalf of the IOUs. To cover the costs of this procurement, DWR
issued bonds, known as Electric Power Fund bonds. Acting under
its authority to issue financing orders, the CPUC authorized the
IOUs to collect the cost of the Electric Power Fund bonds from
ratepayers. Ratepayers will continue to pay the cost of the bonds
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until fully paid, according to the CPUC, in 2022.
According to CPUC, it has exercised its ability to issue financing
orders to authorize refinancing of Electric Power Fund bonds at
lower rates, thereby saving ratepayers money. The CPUC contends
its authority to allow such refinancing is not directly dependent
upon the explicit statutory authority provided to CPUC to issue
financing orders. This is because the Water Code provides the
CPUC the authority to enter into an agreement with the DWR for
electric utility service; however, the Water Code explicitly ties
this authority to the CPUC's authority, found in the Public
Utilities Code, to issue financing orders. The CPUC reasonably
fears that it has no authority to refinance Electric Power Fund
bonds, absent its explicit authority to issue financing orders.
This bill will lay the fear to rest, at least for calendar year
2017.
The author contends the CPUC needs extension of its authority to
issue financing orders for only one year. This is because,
according to the author, the Electric Power Fund bonds retire in
2022; CPUC has no need to authorize refinancing of the bonds in
their final five years. The CPUC, in contrast, expresses a desire
to see its authority to issue financing orders extended to 2022.
Prior/Related Legislation
SB 697 (Hertzberg, Chapter 612, Statutes of 2015) extended the
bond authority sunset.
SB 38 (Padilla, 2014) would have repealed or modified several
sections of the
Public Utilities Code added in 1996 as part of statutes enacted to
restructure the electricity market. The bill was vetoed.
SB 1195 (Padilla, 2014) was chaptered with different subject
matter. An earlier version of the bill included the provisions of
SB 38.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified5/17/16)
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California Public Utilities Commission (source)
OPPOSITION: (Verified5/17/16)
None received
ARGUMENTS IN SUPPORT: According to the author, this bill ensures
that bonds can be refinanced at lower rates when they're
available, reducing costs to ratepayers.
Prepared by:Jay Dickenson / E., U., & C. / (916) 651-4107
5/18/16 16:44:56
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