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The Road to Legislation

Fortnightly Magazine - November 15 1996

and the transformation of QF purchased-power contracts from high fixed costs to market pricing. PG&E's large customers wanted direct access as quickly as possible, and small customers, if anything, expressed more concern with system reliability in the wake of two major storm-related outages.

PG&E's Counterproposal

Accordingly, PG&E proposed that it be allowed to freeze its rates at current levels and collect stranded costs (the difference between the frozen rates and actual costs) through the year 2001. It would also reprice power from Diablo Canyon, foregoing several billion dollars in expected revenues as part of the effort to move more quickly to competition. Its new proposal, like SCE's MOU, offered attractive features for many of the state's influential players (em including labor unions, independent power producers, and industrial and agricultural customers.

Large industrial customers and agricultural customers liked the promise of an earlier end to stranded-cost recovery (up to four years sooner than might have occurred under CPUC orders) as well as PG&E's promise to support a freeze of cost allocation among customer classes. PG&E agreed with its labor unions to include worker retraining provisions in stranded-cost recovery. Independent producers, including the association representing oil company cogeneration projects, liked the proposed QF payment mechanisms and negotiated certain hard-to-get exemptions from the Competition Transition Charge (CTC) that would collect the stranded costs. PG&E did not, however, convince TURN to support its settlement package.

The Peacemaker

During this period, State Sen. Steve Peace (D-Chula Vista), chairman of the Energy, Utilities and Communications Committee, had made known his desire to resolve the disparate issues in an end-of-session conference committee. This unusual procedural move involved holding more than a dozen bills in committee throughout the legislative session. Many parties were skeptical that such a conference committee could come to grips with the multitude of issues involved in restructuring. Senator Peace, however, seemed undaunted, knowing that he had successfully used a similar mechanism to break the logjam over reform of California's worker's compensation laws.

The Final Push

By July, a six-member conference committee had formed and parties prepared for a final push to see if legislation could be crafted. Most of the parties were dubious that a major bill overhauling the state's $23-billion electric industry could find its way to the Governor's desk before the end-of-August deadline. Many times it appeared the process had stalled, but it lurched forward nonetheless.

The major players kept negotiating, using the PG&E and SCE agreements as a template for the legislation. But Senator Peace and the conferees had made it clear that the legislation would not simply codify a deal already struck between the big players. They insisted on a complete, if brutally tedious, review of every major issue in the restructuring debate, with an opportunity for parties left out of negotiations to plead their case to the conference committee. This process inexorably forced inclusion of all interests into both the hearings and the offline negotiating sessions.

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