The California Public Utilities Commission has established guidelines for the recovery of stranded costs over four years through a competition transition charge collected from existing and future customers, including those who depart the system.
The June 11 order allows recovery from 1998 through 2002 for costs associated with generation plants, nuclear settlements and QF contracts (Docket No. R.94-04-031/I.94-04-032). Costs associated with purchased power contracts, including QF contracts in place on Dec. 21, 1995, can be collected for the duration of the contract. Utilities also can recover costs associated with the Biennial Resource Proceeding Update settlement, capital additions to utility generation facilities existing as of December 1995, employee-related transition costs and Southern California Edison's fixed-fuel contracts. They may recover employee costs through Dec. 31, 2006.
Utilities remain at risk for generation-related transitions costs not recovered by the end of 2001. But if costs to implement direct access reduce the ability of utilities to collect generation-related transition costs, then those costs may be collected any time after Dec. 31, 2001. If renewable program funding affects utilities' abilities to recover generation-related transition costs by Dec. 31, 2001, those generation costs may be deferred and recovered during an extension to the transition period from Jan. 1, 2002 to March 31, 2002.
To calculate the value of generation assets eligible for recovery, utilities must add their above-market costs and below-market costs. Utilities must amortize their uneconomic costs so that their recorded rate of return does not exceed the authorized rate of return on rate base.