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Exceptions to the Rule: Bypassing the California Transition Charge

Fortnightly Magazine - November 15 1996

MOU or "Coalition Proposal" (also called "MOU and friends") eventually formed the basis of formal language for AB 1890, which was then unanimously passed by the legislature.

Clearly, the policy of assessing a nonbypassable CTC has been modified by the legislature (em possibly opening up new competitive options for certain players even in advance of 1998. In the hands of the legislature, the term "nonbypassable" is flexible (em something dependent upon the skill of your Sacramento lobbyists. AB 1890 may be fairly characterized as being riddled with exemptions from the CTC levy.

Loopholes and Legalese

Some of the CTC exemptions carry a clear implication of cost-shifting, despite the law's creation of a so-called "fire wall" to prevent the CTC burden from sliding to other customers.

Legalese makes it difficult to determine where the loopholes exist. As Bob Weisenmiller of Oakland-based industry consulting firm MRW & Associates recently said, "It's become a kind of parlor game to guess who the CTC exemptions are meant for and who else might try to use them for their own advantage."

Some exemptions are clearly marked. The major exemptions specified in sections 372 through 374 of the bill cover existing or planned self-generation projects and irrigation districts. New load not served by the utility as of December 1995 is also excluded from the CTC assessment.

Other items excluded from CTC liability include: reductions in energy use due to "normal course of business" such as changes in weather, strikes, moving out of state, and other reasons for lost utility load (em including new energy-efficiency installations, fuel-switching, use of fuel cells, or more efficient repowering of existing equipment. The law specifically preserves customers' right to control energy use on their side of the meter.

What is definitely not protected comes under section 369: "The obligation to pay the [CTC] cannot be avoided by the formation of a local publicly owned electrical corporation on or after December 20, 1995, or by annexation of any portion of an electrical corporation's service area by an existing local publicly owned electric utility." In other words, new municipalization, or "muni-lite" efforts, are liable for the CTC. However, this proscription against territory raiding could be outweighed by other specific exemptions for irrigation districts.

When the legislation applied an exemption from CTC recovery for lost load due to self-generation "committed to construction" as of December 20, 1995, it closed the door to some extent on new projects being slapped together to take advantage of a loophole. In addition to documented proof of commitment, a plant would probably have to be in operation by 1998.

Cogeneration

Such projects currently under development include a 3-megawatt (Mw) cogeneration unit for a medical center at the University of California at San Francisco, and a 28-Mw unit at the medical center for the University of California at Davis, even though a smaller unit for the University of California at San Diego might not qualify. Dian Grueneich, an attorney representing the State of California in energy matters, argued that such exemptions were justified by the substantial monetary investments made by the University