PG&E Debt Payoff Bill Advances Despite Muni Objections

With action taken by Assembly lawmakers this week, Pacific Gas & Electric moved closer to an eventual bond issue that would pay off $2.21 billion in bankruptcy costs. While the financing proposal?through a ?dedicated rate component??has been in the public eye, a new twist on its implications arose this week: system-exit fees under the financing mechanism could frustrate municipal utilities? attempts to gain customers. SB 772, which passed on a unanimous vote of the Assembly Utilities and Commerce Committee February 2, would allow state regulators to authorize the issuance of bonds backed by a dedicated rate component to pay down PG&E?s bankruptcy debt. All existing and future clients in the utility?s territory as of December 18, 2003, would be required to cover bond costs, including those joining or forming a municipal utility. Bill author Senator Debra Bowen (D-Redondo Beach) flatly objected to the settlement among PG&E, the California Public Utilities Commission, and The Utility Reform Network that gave rise to the dedicated rate component idea. Though the pact itself constitutes an ?unfortunate outcome? for PG&E ratepayers in her view, the alternative financing method for which SB 772 provides could reduce the bankruptcy-bond financing rate by as much as 5 percent?with a total possible savings of $1 billion. Several groups voiced their support for the bill, including the California Manufacturers and Technology Association, the California Large Energy Consumers Association, and the California Coalition of Utility Employees. Some, such as the California Farm Bureau Federation (CFBF), see the legislation as a way to somewhat brighten an otherwise dim economic picture. ?This is where we are right now?we have the opportunity to find savings for our customers,? said Karen Mills, CFBF associate counsel. Given estimated PG&E ratepayer savings of $100 million per year under the bill, energy costs for the utility?s agricultural clients would shrink by about $0.002/kWh. For municipal utilities near PG&E territory, however, the bill casts a dark shadow. The California Municipal Utilities Association contends that PG&E has known for some time?even before the DWR contracts were signed to help halt the energy crisis?that some utility accounts would switch to municipal service. Subjecting those customers to a nonbypassable system-exit fee would thus have an ?adverse impact? on munis, according to municipals representative Brett Barrow. Further, Barrow questioned the temporal equity problem?whether people who move to California and receive muni service should be made to pay the charge. ?Why should they pay for something they?ve never used, never saw, and didn?t know exists?? he asked Northern California Power Agency legislative director John Fistolera argued that the exit fee would require municipal utility customers to finance PG&E?s decision to enter into bankruptcy. In an interview, he pointed out that while the investor-owned utility suffered financial woes resulting from the energy crisis, so did municipals, and a new exit fee would serve to hold munis responsible for PG&E?s business troubles. TURN senior attorney Mike Florio said the bill deals only with the costs of PG&E?s bankruptcy and is not necessarily linked to municipalization. ?Certainly, anyone who was a PG&E customer during that time should be responsible for their equivalent share of [costs]?regardless of whether they subsequently took municipal service,? he said. ?If you could escape this charge by municipalizing, it would give an unfair advantage? to munis and promote unjust cost-shifting to PG&E ratepayers. Munis hope that two other issues will be resolved as the bill moves forward. Both the Modesto and Merced irrigation districts were concerned about customers occupying territory shared by the districts and PG&E. These accounts, which amount to about 50 MW for each irrigation district, will not be made to bear the exit fee, parties at this week?s hearing agreed. In addition, customers in a ?greenfield? site not yet served by any utility would be exempt from the nonbypassable charge?so long as the muni annexes the parcel through a local agency formation commission and provides all other municipal services, such as sewer and water. After much discussion, lawmakers agreed to remove language in the bill stating that the legislature ?is not ratifying or endorsing any particular outcome? of PG&E?s bankruptcy case. Jordan Garrett, bond counsel representing the CPUC, said that language could have led potential bond purchasers to believe that lawmakers are not happy with the bankruptcy pact and could act to change it, which could lower the bond rating and thus associated ratepayer savings. The Assembly committee, led by chair Sarah Reyes (D-Fresno), decided that the language would instead be recorded in the legislative journal rather than in SB 772. Lawmakers also agreed that the bill should be categorized again as an ?urgency? statute (as part of the legislative process, the bill accidentally lost this label). SB 772 will go before the Assembly Appropriations Committee either next week or the week after. During Monday?s vote, Assembly Utilities and Commerce Committee members voted 11-0 in favor of the bill. Assemblymembers Jerome Horton (D-Inglewood), Doug La Malfa (R-Richvale), and John Longville (D-Rialto) did not vote.

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PG&E Debt Payoff Bill Advances Despite Muni Objections

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