[BETA] Fortnightly

WITH DIRECT ACCESS SCHEDULED TO BEGIN ON Jan. 1, 1998, California regulators are moving quickly to set up their long-considered policies on electric restructuring. The restructuring actions touch nearly every aspect of electric regulation in the state from financing decisions and rate design to the sale of generating assets and monitoring new capital additions.

In addition, restructuring has affected ongoing regulatory activities such as the development of performance-based rate making plans and pricing and rate designs for large incumbent utilities.

Sale of Generation Assets

Southern California Edison wants to divest itself of its 12 gas-fired plants while Pacific Gas & Electric Co. will sell three separate plants representing 45 percent of its fossil fuel generating capacity. Two years ago, the commission had ruled that the utilities should voluntarily divest themselves of at least 50 percent of their fossil fuel generating capacity. See, Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, 166 PUR4th 1 (Cal.P.U.C.1995).

Now, while authorizing each utility to "commence an auction" of plants, the commission has said it will review the final bids to determine whether the sales will harm either the reliability of the state's electric system or development of competition. Re Pacific Gas & Electric Co., Decision 97-09-046, a. 96-11-020, Sept. 3, 1997 (Cal.P.U.C.); Re Southern California Edison Co., Decision 97-09-049, a. 96-11-046, Sept. 3, 1997 (Cal.P.U.C.).

Capital Additions

The commission also has reviewed past and future expenditures for non-nuclear capital additions put into service by Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric Co. At issue are generating costs incurred by the utilities to improve plant performance or to maintain system reliability. Earlier, the commission had issued separate decisions for rate making treatment of the state's three major nuclear generating plants: San Onofre (Decision 96-01-011), Palo Verde (Decision 96-12-083) and Diablo Canyon (Decision 97-05-088).

Generally, recovery of generation-related costs are not guaranteed under AB 1890, the state's electric restructuring law enacted in 1996. When the new market structure was developed, it was thought utilities might make expensive improvements to generating facilities to enhance their market positions.

The commission has now said each utility must file applications for recovery of any 1996 or 1997 capital costs in a competition transition charge. But before a utility can recover the costs, each expenditure must be reviewed for consistency with past capital budgets, cost effectiveness and operating performance. Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, Decision 97-09-048, R.94-04-031, I.94-04-032, Sept. 3, 1997 (Cal.P.U.C.).

Revenue Reduction Bonds

The commission has authorized Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric Co. to issue to issue rate reduction bonds. The commission said Pacific Gas & Electric could issue $3.5 billion aggregate principal amount of the bonds; Southern California Edison $3 billion, and San Diego Gas & Electric $800 million.

The revenue requirement reduction produced by the bonds will give the small user a 10-percent rate reduction through a rate-freeze period as established under AB 1890. Under the approved financing plans, each utility will create a