Legislation to refinance Pacific Gas & Electric?s $2.21 billion regulatory asset with rate-backed bonds sailed through the Assembly, passing on a 66-1 vote early this week. SB 772 by Senator Debra Bowen (D-Redondo Beach) is expected to be passed by the Senate next week in order to decrease PG&E ratepayers? $7.2 billion bankruptcy bill by several hundred million dollars. The savings will come from the lower financing costs, in particular the elimination of taxes on the equity portion of the regulatory asset, said economist Bill Marcus of JBS Energy. The original savings to PG&E ratepayers were estimated at up to $1 billion, but delay of the bill?s passage caused the figure to drop by about $300,000 a day since the beginning of the year (see Circuit, Feb. 13, 2004). With few allies, public power agencies continued to fight the legislation because new muni customers will face a half-cent\/kWh charge to help pay off PG&E bankruptcy debt, on top of exit fees, said Jerry Jordan, executive director of the California Municipal Utilities Association. SB 772 provides ?an iron-clad guarantee that PG&E never loses a customer? because of higher costs imposed on public power agencies, he added. The munis expected to be hit hardest are the cities of Roseville and Redding. They have growing numbers of customers and annexation plans. ?This is the stinkiest thing I have seen in years,? said Tom Habashi, Roseville Electric utility director. PG&E never planned to serve the areas slated for annexation from a supply or distribution perspective, he said. Exit fees are expected to raise Roseville?s rate by up to 40 percent. New customers of the Sacramento Municipal Utility District and the Merced and Modesto irrigation districts also may be levied the half-cent\/kWh cost. SMUD is immediately concerned about a 10- acre parcel it hopes to annex in West Sacramento to serve a Sacramento County treatment plant that is not served by PG&E (see <i>Circuit<\/i>, Jan. 30, 2004). Ralph Carmona, SMUD director of government affairs, said the $75,000 collected from refinancing isn?t about improving PG&E?s ratings but is ?the camel?s nose under the tent.? The two irrigation districts were up in arms over a previous version of the bill because it would hit their new customers with PG&E fees although they and the private utility reached a deal a couple of years ago on divvying up their shared territory. Under recent amendments, however, the California Public Utilities Commission could exempt irrigation districts? new customers from the surcharge?as well as ratepayers of new munis that expand by under 50 MW and into greenfields. To assuage concerns about allocation of the dedicated rate component refinancing costs under the bill, CPUC member Susan Kennedy sent a letter to the Legislature stating that there will be a ?fair hearing and municipal utilities will have an opportunity to participate fully.? In a May 6 letter to Assemblymember Keith Richman (R-Northridge), Kennedy wrote that ?there will be robust debate before a decision is made.? Richman voted for the bill May 10 after reassurances from Kennedy that PG&E?s argument that the CPUC lacked discretion to exempt muni customers would not fly. ?There is nothing in the letter that provides us with any solace,? Jordan replied. Observers note that the current bill is neutral on the application of exit fees and the munis? modus operandi is protecting their turf. ?Like PG&E, they are engaged in a larger philosophical\/religious struggle,? one source said. Although direct-access customers may face higher exit fees under the bill, they didn?t seem too concerned, perhaps because they have the governor?s ear.