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Something for Everyone: The Politics of California's New Law on Electric Restructuring

Fortnightly Magazine - November 15 1996

companies, which had either come on line, committed to construction, or agreed to deferral. Similarly, irrigation districts claimed a privilege to exercise little-used but preexisting rights to serve customers outside their districts. Customers who had obtained the right to replace utility power with service from federal power marketing agencies also claimed exemptions from the CTC. By agreeing to these exemptions, the utilities undoubtedly viewed losing these CTC contributions as a reasonable business risk.

In the end, the legislative committee did not go as far as some parties had negotiated on how such exemptions might work, but left considerable discretion on this issue with the CPUC.4

Concerned that small customers might bear the cost of these exemptions, TURN and other consumer advocates argued for some assurance of protection from any additional cost-shifting. Toward this end, AB 1890 provides a "fire wall" to prevent the exemptions provided to large customers from being recovered through small customers.

Constructing this fire wall required making a determination as to the CTC split between large and small customers. As noted above, the stranded-cost burden was divided 60/40 between large and small customers, respectively. Therefore, any exemptions provided to large customers must be recovered from the remaining customers within the class and as part of the rate freeze.5 Since the potential exists that customers rates can be frozen through March 31, 2002, utilities can only collect the cost of these exemptions if all other stranded costs have been recovered. That is the business risk they calculated they could accept.

What About the QFs?

Though not as vocal as the oil companies, agricultural interests, or manufacturers, QFs (qualifying cogeneration and small power production facilities) received some stocking-stuffers as well.

AB 1890 reaffirms the CPUC's position with regard to contract sanctity for QFs. It also allows for an additional $5 billion in revenue bonds to be issued by the California Infrastructure and Economic Development Bank to assist in the renegotiation and/or buy-out of QF contracts. In addition, AB 1890 ensures that utilities can recover the costs associated with these QF commitments until the end of their contract terms (em until 2028, in some cases. The QFs remain vulnerable only to the extent that their contracts and nuclear decommissioning costs will be the only remaining stranded cost after 2006, leaving them somewhat open to attack.

In addition, the renewable energy community managed to gain some ground, with the

legislation creating a statutory floor for utility investment in renewables. Although the legislation did not create a renewables portfolio standard, as many environmentalists and renewable project owners had been hoping, it does provide the renewables community with a minimum of $465 million in funding over the transition period, with a maximum of $540 million.

A split in the renewables community emerged during the debate, however, over what portion of this funding should be used to support existing as opposed to new projects. Initially, the existing project owners won the debate, having managed to insert language providing for a 60/40 split in their favor. However, at the eleventh hour, as a result of additional pressure,