Moody's Investors Service has confirmed the debt ratings of California's three largest IOUs (em Pacific Gas and Electric Co. (PGE: Sr. Secured A2), San Diego Gas and Electric Co. (SDG&E: Sr. Secured A1), and Southern California Edison Co. (SCE: Sr. Secured A2) (em following passage of AB 1890, the California legislature's restructuring bill.
Moody's says that legislative endorsement of stranded-cost recovery is a favorable development for utility creditors, but notes that ultimate recovery depends on regulatory approval. Although the three utilities submitted their respective stranded-cost estimates on August 30, Moody's expects other parties to the PUC's restructuring proceeding to offer alternative stranded cost estimates. Thus, while the legislation provides assurance that stranded costs will be recovered, the actual definition and quantification of stranded costs remains subject to the uncertainties of California's regulatory process.
Toward Utility Rate Normalization (TURN) claims that the bill would pass to ratepayers many costs associated with bad investments, such as the Diablo Canyon and San Onofre nuclear plants, and has vowed to reduce the utilities' estimate of $28.5 billion in stranded costs. "We have the most expensive power in America and we should have a rate cut," says TURN executive director Nettie Hoge. "Without the bailout, it could have been more than 10 percent. And without the bailout, we wouldn't need to sell bonds to finance it."
TURN notes, however, that the bill does moderate the "damage" inflicted by the PUC restructuring decision in that it grants small consumers at least a 10-percent rate cut, limits the time allowed to collect the competition transition charge (CTC), protects ratepayers from future cost-shifting from large industrial users, and preserves low-income, energy-efficiency, and consumer-protection programs. t
Lori A. Burkhart is an associate legal editor of PUBLIC UTILITIES FORTNIGHTLY.
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