Action Guide
November 3, 1998
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Action Guide November 3, 1998 |
SUPPORTS
Proposition 9 — Electric Utilities
The initiative would prohibit investor-owned utilities from recovering the unprofitable costs of their nuclear power plants, estimated at $5.9 million by the California Energy Commission (CEC), from their rate payers. The utilities would be required to apply to the California Public Utilities Commission (CPUC) for recovery of unprofitable non-nuclear costs. The measure also prohibits the use of taxes, surcharges or bond financing for collection of the utilities' unprofitable generation-related transition costs. The measure calls for at least 10% reductions in the rates charged residential and small commercial customers of investor-owned utilities on January 1, 1999, in addition to the 10% reductions in effect now. The initiative will primarily affect the three largest investor-owned utilities: Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E), who own nuclear power plants and are collecting deregulation transition costs. The Legislative Analyst says that the measure could result in losses to the state in the high tens of millions of dollars, and to local government in the low tens of million dollars from taxes and fees, but that state and local governments could save tens of millions of dollars in lower utility rates.
In 1996 legislation (AB1890) was passed to deregulate a portion of electric services (energy generation) in California and freeze rates for residential and small commercial customers at 1996 levels. Beginning January 1, 1998, for a transition period ending March 31, 2002, AB1890 required the CPUC to allow affected utilities to recover their unprofitable investments (estimated at about $28 billion) through a Competitive Transition Charge (CTC) to ratepayers. The CTC is calculated as the difference between the frozen rate and the utilities' total cost of providing service. Of the $28 billion originally estimated in unprofitable investments, the utilities estimate that they would have to write off $5.3 billion in nuclear- related investments if the initiative is put into effect. The utilities will still be allowed to recover from ratepayers many of their unprofitable investments which were required by law, such as contracts for renewable energy.
In addition, a new financing mechanism allowed debt of the utility companies to be shifted to ratepayers in the form of "rate reduction bonds." The bonds were not taxpayer approved, but were issued by the California Infrastructure and Economic Development Bank, a state-sponsored fund. The bond issue is described as an asset-backed securities product, meaning that it is backed by the utility customers' future rates. Both the bond prospectus and AB 1890 state that the bonds are not backed by the State of California.
The repayment charge for these bonds appears on electric bills of residential and small business customers as the Trust Transfer Amount (TTA) and is generally greater than the 10% rate reduction received in 1998. AB 1890 required the CPUC to find that issuance of the bond would help provide the rate reduction. Without implementation of this initiative, these declining TTA charges would continue for 10 years, whereas the 10% rate reduction is for only four years. The initiative would prevent the utilities from collecting the TTA charge from ratepayers.
To date the new energy deregulation policies have failed to provide residential and small commercial customers with any significant rate reductions or choices. The benefits have gone to the investor-owned utilities and their shareholders, who received recovery of their unprofitable investments, and to large commercial customers through lower rates. In other states, utilities have voluntarily or through regulated action written off a portion of their unprofitable investments so that small customers could receive larger rate reductions. California utilities will continue to be responsible for maintaining facilities and delivery of service, and they argued to the Legislature that they could not remain competitive with out of state utilities in a deregulated market without the legislation. Out of state utilities which had no unprofitable investments to cover could presumably offer lower rates for electricity.
Although AB 1890 said that the bonds were not an obligation of the state, it also said that the state would do nothing to limit or alter the provisions of the measure relating to transition charges or the bond arrangements without making adequate provision for bondholders. Investors were warned in the bond prospectus that the initiative might negatively impact the bonds. There are legal questions that can only be answered by a court test if this measure passes. They include whether the utilities (i.e. the stockholders) would be liable for repayment of the bonds, or whether a court might find that the measure denied the utilities a fair rate of return on investment and rule that they could recover "reasonable" costs from the ratepayers. The Legislative Analyst does not predict that the costs would be born by the taxpayers.
| Supporters Signing ballot argument for:
Harvey Rosenfield, Co-Chair
Nettie Hogue, Executive Director
Harry M. Snyder, Senior Advocate |
Opponents Signing ballot argument against:
Larry McCarthy, President
Jerry Meral, Executive Director
Allan Zaremberg, President |
Californians against Utility Taxes (CUT), 310-392-0522, www.nonukebailout.org.