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AB-83 Alternative Electric Utility Rate Stabilization Act of 2001.(2001-2002)



Current Version: 07/17/01 - Introduced

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AB83:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2001–2002 2nd Ext.

Assembly Bill
No. 83

Introduced  by  Assembly Member Wright

July 17, 2001

An act to amend Sections 367, 368, 369, 377, 840, 841, 842, 843, 846, 846.2, 1731, and 9601 of, and to add Sections 367.2, 451.1, and 848 to, the Public Utilities Code and to amend Sections 80002 and 80110 of the Water Code, relating to energy.


LEGISLATIVE COUNSEL'S DIGEST


AB 83, as introduced, Wright. Alternative Electric Utility Rate Stabilization Act of 2001.
(1) Existing law authorizes the Public Utilities Commission to establish rates for public utilities.
This bill would require the commission to establish the Ratepayer Refund Account with separate subaccounts for each electrical corporation that has entered into an electrical rate settlement agreement. The bill would require that all funds recovered by an electrical corporation from any litigation or agreement relative to the charging of excessive costs for power by electric power generators and suppliers for periods prior to January 18, 2001, be credited to the account. The bill would require all moneys credited to the Ratepayer Refund Account to be refunded to ratepayers, as specified.
(2) Provisions of the Public Utilities Act restructuring the electrical industry establish a process for the recovery by electrical corporations of uneconomic costs during a transition period that began on January 1, 1998, and ends for an electrical corporation on the earlier of March 31, 2002, or the date that the electrical corporation fully recovers its uneconomic costs. Existing law imposes a rate freeze and a rate reduction during the transition period to remain in effect until March 31, 2002, unless the electrical corporation fully recovers its uneconomic costs at an earlier date. The electrical corporation is at risk for those costs not recovered during that time period. Existing law requires the Public Utilities Commission to establish an effective mechanism that ensures the recovery of transition costs.
This bill would exempt from that assignment of the risk of unrecovered costs an electrical corporation that has entered into an electrical rate settlement agreement, as described in (4), below and provided the electrical corporation is not in material default of the agreement. The bill would require the commission to establish an effective mechanism that ensures recovery of qualified costs and debt service costs, as specified. The bill would require the commission to establish rates that enable the public utility electrical corporation to recover all reasonable costs of producing power and ancillary services from utility retained generation (URG), and of qualifying facility and other bilateral contracts, dedicated to the service of bundled service customers, and the costs of other power and ancillary services procurement costs for bundled service customers.
The bill would prohibit the commission, if an electrical corporation is party to definitive agreements required to be entered into as part of an electric rate settlement agreement, and that electrical corporation is not in material default under that settlement agreement, from reducing, before January 1, 2006, that electrical corporation’s authorized return on equity below the return authorized by the decision or decisions of the commission governing authorized return on equity applicable to that electrical corporation as of the date of that electric rate settlement agreement or establishing a ratemaking capital structure for that electrical corporation with proportions of common equity, preferred equity, and long term indebtedness different than those authorized by the decision or decisions of the commission governing ratemaking capital structure of that electrical corporation as of the date of the electric rate settlement agreement, unless the commission determines that the establishment of a different ratemaking capital structure is necessary to maintain an investment grade credit rating for the electrical corporation.
(3) Existing law prohibits any public utility subject to regulation by the Public Utilities Commission from disposing of generation facilities prior to January 1, 2006.
This bill would permit disposing of generation facilities if specifically authorized by the commission.
(4) The Public Utilities Act provides for the issuance of rate reduction bonds in connection with the recovery of transition costs.
This bill would provide for the issuance of financing orders, until December 15, 2006, in connection with the recovery of qualified costs, as defined, including the “net undercollected amount” or other amount contemplated to be recovered by a dedicated rate component, determined in the applicable electric rate settlement agreement and as verified by the commission in accordance with that settlement agreement, interest associated with that net undercollected amount or other amount, and the reasonable costs of providing, recovering, financing, or refinancing qualified costs through a financing order. Rate reduction bonds or other evidences of indebtedness or ownership issued to finance recovery of qualified costs would be also referred to as “rate stabilization bonds.”
The bill would define “settlement agreement.”
The bill would require customers to continue to pay the nonbypassable charge in accordance with the financing orders until the electrical corporation has recovered the qualified costs set forth in the financing orders and, if rate stabilization bonds have been issued, until those bonds are paid in full by the financing entity. Because a violation of the Public Utilities Act is a crime, this bill, by imposing new requirements on customers, would change the definition of a crime, thereby imposing a state-mandated local program.
The bill would make corresponding changes to existing law.
(5) Existing law authorizes the Department of Water Resources to enter into contracts for the purchase of electric power. Existing law authorizes the department to sell power to retail end-use customers and, with specified exceptions, to local publicly owned electric utilities at not more than the department’s acquisition costs and prohibits that law from being construed to reduce or modify any electric corporation’s obligation to serve. Existing law suspends, for a period of time, the right of a retail end-use customer to acquire service from other providers until the department no longer supplies power under these provisions.
This bill would permit a reduction or modification of service to the extent set forth in a definitive agreement implementing the procurement obligations of the department or contemplated by a settlement agreement.
This bill would modify the provision that suspends the right of a retail end-use customer acquiring power from the department from acquiring service from other providers to require the commission to authorize direct transactions on an open enrollment basis not less than 2 times per year. (6) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 This act shall be known, and may be cited, as the “Alternative Electric Utility Rate Stabilization Act of 2001.”

SEC. 2.

 The Legislature finds and declares all of the following:
(a) A major component of retail electric utility rates in California is the cost of procuring electricity in the wholesale markets needed to provide electric service.
(b) Electrical corporations have incurred substantial costs procuring power in the wholesale markets that have not been recovered in full from retail customers and the failure to recover those costs is jeopardizing the ability of those corporations to continue providing reliable service.
(c) In order to prevent substantial harm to the economy and the people of the state that would result from the immediate recovery of those costs, it is necessary to provide for the recovery of a portion of those costs over a period of years and to provide a mechanism by which those costs may be financed prior to their recovery.
(d) In light of the current financial condition of the electrical corporations in the state and the general condition of the electric utility industry in the state, the financing costs that will be reflected in rates paid by electric customers can be substantially reduced through financing backed by irrevocable nonbypassable rates and charges.
(e) It is the intent of the Legislature that, to the extent that an electrical corporation has entered into a settlement agreement with the state as to certain claims and has agreed to certain other actions as described in the act adding this section, provision should be made for the recovery of unrecovered costs of acquiring electric power to meet the retail load of that electric corporation in accordance with and to the extent provided in a settlement agreement through nonbypassable charges in the retail rates applicable to customers within the service area of that electrical corporation to mitigate the costs borne by those customers, and that the Public Utilities Commission will implement financing orders allowing those electrical corporations to recover these unrecovered costs through those nonbypassable charges.
(f) The authorizations and provisions set forth in the act adding this section are necessary to ensure that reliable service to retail customers is not jeopardized by the substantial under-recovery of wholesale electric costs by electrical corporations and that the impact on electric rates caused by providing for the recovery of those costs should be minimized to the extent practicable.
(g) Neither the full faith and credit nor the taxing power of the State of California is pledged to the payment of the principal of, or any interest on, any securities authorized by the act adding this section.

SEC. 3.

 Section 367 of the Public Utilities Code is amended to read:

367.
 The commission shall identify and determine those costs and categories of costs for generation-related assets and obligations, consisting of generation facilities, generation-related regulatory assets, nuclear settlements, and power purchase contracts, including, but not limited to, restructurings, renegotiations or terminations thereof approved by the commission, that were being collected in commission-approved rates on December 20, 1995, and that may become uneconomic as a result of a competitive generation market, in that these costs may not be recoverable in market prices in a competitive market, and appropriate costs incurred after December 20, 1995, for capital additions to generating facilities existing as of December 20, 1995, that the commission determines are reasonable and should be recovered, provided that these additions are necessary to maintain the facilities through December 31, 2001. These uneconomic costs shall include transition costs as defined in subdivision (f) of Section 840, and shall be recovered from all customers or in the case of fixed transition amounts, from the customers specified in subdivision (a) of Section 841, on a nonbypassable basis and shall:
(a) Be amortized over a reasonable time period, including collection on an accelerated basis, consistent with not increasing rates for any rate schedule, contract, or tariff option above the levels in effect on June 10, 1996; provided that, the recovery shall not extend beyond December 31, 2001, except as follows:
(1) Costs associated with employee-related transition costs as set forth in subdivision (b) of Section 375 shall continue until fully collected; provided, however, that the cost collection shall not extend beyond December 31, 2006.
(2) Power purchase contract obligations shall continue for the duration of the contract. Costs associated with any buy-out, buy-down, or renegotiation of the contracts shall continue to be collected for the duration of any agreement governing the buy-out, buy-down, or renegotiated contract; provided, however, no power purchase contract shall be extended as a result of the buy-out, buy-down, or renegotiation.
(3) Costs associated with contracts approved by the commission to settle issues associated with the Biennial Resource Plan Update may be collected through March 31, 2002; provided that only 80 percent of the balance of the costs remaining after December 31, 2001, shall be eligible for recovery.
(4) Nuclear incremental cost incentive plans for the San Onofre nuclear generating station shall continue for the full term as authorized by the commission in Decision 96-01-011 and Decision 96-04-059; provided that the recovery shall not extend beyond December 31, 2003.
(5) Costs associated with the exemptions provided in subdivision (a) of Section 374 may be collected through March 31, 2002, provided that only fifty million dollars ($50,000,000) of the balance of the costs remaining after December 31, 2001, shall be eligible for recovery.
(6) Fixed transition amounts, as defined in subdivision (d) of Section 840, may be recovered from the customers specified in subdivision (a) of Section 841 until all rate reduction bonds associated with the fixed transition amounts have been paid in full by the financing entity.
(b) Be based on a calculation mechanism that nets the negative value of all above market utility-owned generation-related assets against the positive value of all below market utility-owned generation related assets. For those assets subject to valuation, the valuations used for the calculation of the uneconomic portion of the net book value shall be determined not later than December 31, 2001, and shall be based on appraisal, sale, or other divestiture. The commission’s determination of the costs eligible for recovery and of the valuation of those assets at the time the assets are exposed to market risk or retired, in a proceeding under Section 455.5, 851, or otherwise, shall be final, and notwithstanding Section 1708 or any other provision of law, may not be rescinded, altered or amended.
(c) Be limited in the case of utility-owned fossil generation to the uneconomic portion of the net book value of the fossil capital investment existing as of January 1, 1998, and appropriate costs incurred after December 20, 1995, for capital additions to generating facilities existing as of December 20, 1995, that the commission determines are reasonable and should be recovered, provided that the additions are necessary to maintain the facilities through December 31, 2001. All Except as provided in an electric rate settlement agreement, as defined in Section 840, and provided that the electrical corporation is not in material default of that agreement, all“going forward costs” of fossil plant operation, including operation and maintenance, administrative and general, fuel and fuel transportation costs incurred prior to December 31, 2000, shall be recovered solely from independent Power Exchange revenues or from contracts with the Independent System Operator, provided that for the purposes of this chapter, the following costs may be recoverable pursuant to this section:
(1) Commission-approved operating costs for particular utility-owned fossil powerplants or units, at particular times when reactive power/voltage support is not yet procurable at market-based rates in locations where it is deemed needed for the reactive power/voltage support by the Independent System Operator, provided that the units are otherwise authorized to recover market-based rates and provided further that for an electrical corporation that is also a gas corporation and that serves at least four million customers as of December 20, 1995, the commission shall allow the electrical corporation to retain any earnings from operations of the reactive power/voltage support plants or units and shall not require the utility to apply any portions to offset recovery of transition costs. Cost recovery under the cost recovery mechanism shall end on December 31, 2001.
(2) An electrical corporation that, as of December 20, 1995, served at least four million customers, and that was also a gas corporation that served less than four thousand customers, may recover, pursuant to this section, 100 percent of the uneconomic portion of the fixed costs paid under fuel and fuel transportation contracts that were executed prior to December 20, 1995, and were subsequently determined to be reasonable by the commission, or 100 percent of the buy-down or buy-out costs associated with the contracts to the extent the costs are determined to be reasonable by the commission.
(d) Be adjusted throughout the period through March 31, 2002, to track accrual and recovery of costs provided for in this subdivision. Recovery of costs prior to December 31, 2001, shall include a return as provided for in Decision 95-12-063, as modified by Decision 96-01-009, together with associated taxes.
(e) (1) Be allocated among the various classes of customers, rate schedules, and tariff options to ensure that costs are recovered from these classes, rate schedules, contract rates, and tariff options, including self-generation deferral, interruptible, and standby rate options in substantially the same proportion as similar costs are recovered as of June 10, 1996, through the regulated retail rates of the relevant electric utility, provided that there shall be a firewall segregating the recovery of the costs of competition transition charge exemptions such that the costs of competition transition charge exemptions granted to members of the combined class of residential and small commercial customers shall be recovered only from these customers, and the costs of competition transition charge exemptions granted to members of the combined class of customers, other than residential and small commercial customers, shall be recovered only from these customers.
(2) Individual customers shall not experience rate increases as a result of the allocation of transition costs. However, customers who elect to purchase energy from suppliers other than the Power Exchange through a direct transaction, may incur increases in the total price they pay for electricity to the extent the price for the energy exceeds the Power Exchange price.
(3) The commission shall retain existing cost allocation authority, provided the firewall and rate freeze principles are not violated.

SEC. 4.

 Section 367.2 is added to the Public Utilities Code, to read:

367.2.
 (a) The commission shall establish a Ratepayer Refund Account with a separate subaccount for each electrical corporation that has entered into an electrical rate settlement agreement as defined in Section 840. All funds recovered by an electrical corporation that has entered into an electrical rate settlement agreement, as defined in Section 840, resulting from any litigation or agreement relative to the charging of excessive costs for power by electric power generators and suppliers for the period prior to January 18, 2001, shall be credited to an electrical corporation’s subaccount.
(b) The commission shall from time to time in proportion to the class percentage rate increases adopted in the commission’s Decision Number 01-05-064 for the ratepayers of an electrical corporation, refund to each ratepayer in a class based on consumptions of power, moneys in its ratepayer subaccount through a bill credit or, in the alternative, a reduction in rates in the same proportionate manner.
(c) All funds held by an electrical corporation that are required by this section to be credited to the ratepayer subaccount of the corporation are property of the ratepayers of that electrical corporation and are held in trust on their behalf.

SEC. 5.

 Section 368 of the Public Utilities Code is amended to read:

368.
 Each electrical corporation shall propose a cost recovery plan to the commission for the recovery of the uneconomic costs of an electrical corporation’s generation-related assets and obligations identified in Section 367. The commission shall authorize the electrical corporation to recover the costs pursuant to the plan if the plan meets the following criteria:
(a) The cost recovery plan shall set rates for each customer class, rate schedule, contract, or tariff option, at levels equal to the level as shown on electric rate schedules as of June 10, 1996, provided that rates for residential and small commercial customers shall be reduced so that these customers shall receive rate reductions of no less than 10 percent for 1998 continuing through 2002. These rate levels for each customer class, rate schedule, contract, or tariff option shall remain in effect until the earlier of March 31, 2002, or the date on which the commission-authorized costs for utility generation-related assets and obligations have been fully recovered. The Except as provided in an electrical rate settlement agreement, as defined in Section 840, the electrical corporation shall be at risk for those costs not recovered during that time period. Each utility shall amortize its total uneconomic costs, to the extent possible, such that for each year during the transition period its recorded rate of return on the remaining uneconomic assets does not exceed its authorized rate of return for those assets. For purposes of determining the extent to which the costs have been recovered, any over-collections recorded in Energy Costs Adjustment Clause and Electric Revenue Adjustment Mechanism balancing accounts, as of December 31, 1996, shall be credited to the recovery of the costs.
(b) The cost recovery plan shall provide for identification and separation of individual rate components such as charges for energy, transmission, distribution, public benefit programs, and recovery of uneconomic costs. The separation of rate components required by this subdivision shall be used to ensure that customers of the electrical corporation who become eligible to purchase electricity from suppliers other than the electrical corporation pay the same unbundled component charges, other than energy, that a bundled service customer pays. No cost shifting among customer classes, rate schedules, contract, or tariff options shall result from the separation required by this subdivision. Nothing in this provision is intended to affect the rates, terms, and conditions or to limit the use of any Federal Energy Regulatory Commission-approved contract entered into by the electrical corporation prior to the effective date of this provision.
(c) In consideration of the risk that the uneconomic costs identified in Section 367 may not be recoverable within the period identified in subdivision (a) of Section 367, an electrical corporation that, as of December 20, 1995, served more than four million customers, and was also a gas corporation that served less than four thousand customers, shall have the flexibility to employ risk management tools, such as forward hedges, to manage the market price volatility associated with unexpected fluctuations in natural gas prices, and the out-of-pocket costs of acquiring the risk management tools shall be considered reasonable and collectible within the transition freeze period. This subdivision applies only to the transaction costs associated with the risk management tools and shall not include any losses from changes in market prices.
(d) In order to ensure implementation of the cost recovery plan, the limitation on the maximum amount of cost recovery for nuclear facilities that may be collected in any year adopted by the commission in Decision 96-01-011 and Decision 96-04-059 shall be eliminated to allow the maximum opportunity to collect the nuclear costs within the transition cap period.
(e) As to an electrical corporation that is also a gas corporation serving more than four million California customers, so long as any cost recovery plan adopted in accordance with this section satisfies subdivision (a), it shall also provide for annual increases in base revenues, effective January 1, 1997, and January 1, 1998, equal to the inflation rate for the prior year plus two percentage points, as measured by the consumer price index. The increase shall do both of the following:
(1) Remain in effect pending the next general rate case review, which shall be filed not later than December 31, 1997, for rates that would become effective in January 1999. For purposes of any commission-approved performance-based ratemaking mechanism or general rate case review, the increases in base revenue authorized by this subdivision shall create no presumption that the level of base revenue reflecting those increases constitute the appropriate starting point for subsequent revenues.
(2) Be used by the utility for the purposes of enhancing its transmission and distribution system safety and reliability, including, but not limited to, vegetation management and emergency response. To the extent the revenues are not expended for system safety and reliability, they shall be credited against subsequent safety and reliability base revenue requirements. Any excess revenues carried over shall not be used to pay any monetary sanctions imposed by the commission.
(f) The cost recovery plan shall provide the electrical corporation with the flexibility to manage the renegotiation, buy-out, or buy-down of the electrical corporation’s power purchase obligations, consistent with review by the commission to assure that the terms provide net benefits to ratepayers and are otherwise reasonable in protecting the interests of both ratepayers and shareholders.
(g) An example of a plan authorized by this section is the document entitled “Restructuring Rate Settlement” transmitted to the commission by Pacific Gas and Electric Company on June 12, 1996.

SEC. 6.

 Section 369 of the Public Utilities Code is amended to read:

369.
 (a) The commission shall establish an effective mechanism that ensures recovery of transition costs referred to in Sections 367, 368, 375, and 376, and subject to the conditions in Sections 371 to 374, inclusive, from all existing and future consumers in the service territory in which the utility provided electricity services as of December 20, 1995; provided, that the costs shall not be recoverable for new customer load or incremental load of an existing customer where the load is being met through a direct transaction and the transaction does not otherwise require the use of transmission or distribution facilities owned by the utility. However, the obligation to pay the competition transition charges cannot may not be avoided by the formation of a local publicly owned electrical corporation on or after December 20, 1995, or by annexation of any portion of an electrical corporation’s service area by an existing local publicly owned electric utility.

This

(b) The commission shall establish an effective mechanism that ensures recovery from all existing and future consumers in the service territory in which the electrical corporation provided electrical service as of January 15, 2001, of qualified costs described in Section 840. The obligation to pay the fixed transition amounts to recover qualified costs may not be avoided by the formation of a local publicly owned electrical corporation on or after January 15, 2001, or by annexation of any portion of an electrical corporation’s service area by an existing local publicly owned electric utility, as defined in subdivision (d) of Section 9604.
(c) The commission shall establish an effective mechanism that ensures recovery of debt service costs associated with the issuance of bonds by the Department of Water Resources pursuant to Chapter 3 (commencing with Section 81200) of Division 28 of the Water Code, from all existing and future consumers in the service territory in which the utility provided electricity services as of January 15, 2001; provided, that the costs may not be recoverable for new customer load or incremental load of an existing customer where the load is being met through a direct transaction and the transaction does not otherwise require the use of transmission or distribution facilities owned by the utility. However, the obligation to pay the debt service costs may not be avoided by the formation of a local publicly owned electrical corporation on or after January 15, 2001, or by annexation of any portion of an electrical corporation’s service area by an existing local publicly owned electric utility.
(d) This section shall does not apply to service taken under tariffs, contracts, or rate schedules that are on file, accepted, or approved by the Federal Energy Regulatory Commission, unless otherwise authorized by the Federal Energy Regulatory Commission.

SEC. 7.

 Section 377 of the Public Utilities Code is amended to read:

377.
 (a) The commission shall continue to regulate the facilities for the generation of electricity owned by any public utility prior to January 1, 1997, that are subject to commission regulation until the owner of those facilities has applied to the commission to dispose of those facilities and has been authorized by the commission under Section 851 to undertake that disposal. Notwithstanding any other provision of law, unless specifically authorized by the commission, no facility for the generation of electricity owned by a public utility may be disposed of prior to January 1, 2006. The commission shall ensure that public utility generation assets remain dedicated to service for the benefit of California ratepayers the public utility’s bundled service customers.
For purposes of this section, utility owned generation, qualifying facility contracts, and other bilateral contracts shall be referred to as utility retained generation or URG. This section does not apply to the transfer or sale of generation plants that are located outside California and are owned by companies not based in California.
(b) Notwithstanding any other provision of law, the commission shall establish rates that enable the public utility electrical corporation to recover on a timely basis, consistent with the utility being of investment grade credit, all reasonable costs of producing power and ancillary services from URG dedicated to the service of bundled service customers. Those rates shall ensure that the public utility electrical corporation is able to recover reasonable operating and capital costs, including a reasonable return of and on the public utility electrical corporation’s investment in owned generation assets. Operating and capital costs shall be recovered consistent with the terms of the electrical corporation’s settlement agreement. The cost of major capital additions and improvements to a public utility electrical corporation’s generation assets shall be reviewed and approved by the commission, in the manner set forth in Sections 1005 and 1005.5, in advance of the public utility electrical corporation being required to invest in such major capital additions or improvements. Decommissioning costs shall be recovered consistent with commission decisions.
(c) Notwithstanding any other provision of law, the commission shall establish rates that enable the public utility electrical corporation to recover on a timely basis, consistent with the utility being of investment grade credit, all reasonable costs of (1) qualifying facility and other bilateral contracts dedicated to the service of bundled service customers, and (2) other power and ancillary services procurement costs for bundled service customers. To the fullest extent practical and feasible, the commission shall establish regulations, guidelines and procedures governing a public utility electrical corporation’s power and ancillary services procurement costs. In addition, to the fullest extent practical and feasible, the commission shall establish procedures to review each public utility electrical corporation’s major power and ancillary services procurement contracts in advance of the public utility electrical corporation executing those contracts. The commission by rule or regulation shall establish for each category, class, and size of public utility electrical corporation reasonable thresholds for determining what constitutes major power and ancillary services procurement contracts. The commission shall permit any public utility electrical corporation that has procured power or ancillary services at wholesale for resale to its retail customers in accordance with the commission’s regulations, guidelines and procedures to fully recover its costs of so doing, including any financing costs. The commission shall permit any public utility electrical corporation that has procured power or ancillary services at wholesale for resale to its retail customers in accordance with the terms of a contract preapproved by the commission to fully recover its costs of so doing, including any financing costs.
(d) The rates described in subdivisions (b) and (c) shall be separate from rates established for the Department of Water Resources pursuant to Division 27 (commencing with Section 80000) of the Water Code, and shall be established based on forecasts of costs submitted by the electrical corporation. Differences between revenues and authorized costs shall be tracked in balancing accounts, and rates shall be adjusted not less than annually. Prior to the commission establishing authorized costs actual costs shall be tracked in the balancing accounts. If the net balances in the electrical corporation’s balancing accounts are over-collected by at least five hundred million dollars ($500,000,000), that overcollection shall be refunded through a bill credit to customers, with each customer class of the electrical corporation receiving a proportionate share of such overcollection in accordance with the commission’s then most recent rate design and cost allocation decision for that electrical corporation. If those balances are under-collected by five hundred million dollars ($500,000,000) or more, rates shall be adjusted to recover the undercollection as determined by the commission in an expeditious manner consistent with enabling the electrical corporation to regain or retain investment grade credit status.

SEC. 8.

 Section 451.1 is added to the Public Utilities Code, to read:

451.1.
 (a) If an electrical corporation is party to the definitive agreements required to be entered into as part of an electric rate settlement agreement, as defined in Section 840, and that electrical corporation is not in material default under that settlement agreement, the commission may not do either of the following:
(1) Before January 1, 2006, reduce that electrical corporation’s authorized return on equity below the return authorized by the decision or decisions of the commission governing authorized return on equity applicable to that electrical corporation as of the date of that electric rate settlement agreement.
(2) Establish a ratemaking capital structure for that electrical corporation with proportions of common equity, preferred equity, and long-term indebtedness different than those authorized by the decision or decisions of the commission governing ratemaking capital structure of that electrical corporation as of the date of the electric rate settlement agreement, unless establishment of a different ratemaking capital structure is necessary to maintain an investment grade credit rating for the electrical corporation, in the determination of the commission.
(b) Rate reduction bonds, as defined in Section 840, may not be considered indebtedness for purposes of determining an electrical corporation’s authorized capital structure.

SEC. 9.

 Section 840 of the Public Utilities Code is amended to read:

840.
 For the purposes of this article, the following terms shall have the following meanings:
(a) “Bank” means the California Infrastructure and Economic Development Bank.
(b) “Department” means the Department of Water Resources.
(c) “Disconnectible charges” means rates and charges the nonpayment of which by a customer, in whole or in part, entitles an electrical corporation to disconnect electric service under procedures set forth in commission tariffs.
(d) “Electric rate settlement agreement” and “settlement agreement” mean a memorandum of understanding entered into prior to December 15, 2001, by an electrical corporation and the department, that may be amended and supplemented by agreement of the parties, setting forth a plan that includes, but is not limited to, all of the following provisions:
(1) A stipulated judgment, dismissal, or release of any litigation or claim that the electrical corporation may have or could have had against the state or any agency, department, or subdivision of the state, the federal government, or the commission, for takings or under the filed rate doctrine arising from or related to the facts asserted in that litigation or, in the case of any electrical corporation that has not commenced litigation, that could be asserted in litigation.
(2) The consent of the electrical corporation to an order of the commission providing for cost-based rates as provided in the electric rate settlement agreement.
(3) A requirement that not later than 90 days after the date the electrical corporation achieves an investment grade credit rating, or December 31, 2002, whichever occurs first, the electrical corporation shall assume the responsibility for procuring the electric power requirements of the customers within its service area other than customers whose load is met through direct transactions.
(e) (1) “Financing entity” means, except with respect to financing orders providing for recovery of qualified costs, as defined in this section, the bank, any special purpose trust, as defined in Section 63010 of the Government Code, that is authorized by the bank to issue rate reduction bonds or acquire transition property, or any other entity authorized by the bank to issue rate reduction bonds or acquire transition property, or both. The bank may authorize an entity other than a special purpose trust, as defined in Section 63010 of the Government Code, to issue rate reduction bonds for transition costs other than qualified costs only if all of the following conditions are met:

(1)

(A) The bank by resolution has determined that allowing another entity to issue rate reduction bonds would produce greater overall ratepayer savings, taking into account all relevant considerations including, but not limited to, the exclusion of interest on rate reduction bonds issued by the bank from investors’ gross income for California or federal income tax purposes, or both, earnings on funds collected and held by the electrical corporation prior to deposit in a fund or account for the benefit of holders of rate reduction bonds, and all costs of issuance and other transaction costs.

(2)

(B) The bank submits to the Joint Legislative Budget Committee a certified copy of the bank’s resolution, together with a report setting forth the basis for the bank’s determination that a financing entity other than the bank or a special purpose trust will produce greater ratepayer savings and at least 30 days have elapsed from the date of submission.
(2) With respect to financing orders providing for recovery of qualified costs, “financing entity” means an electrical corporation or any entity designated by the electrical corporation to issue rate reduction bonds or acquire transition property, or both.

(c)

(f) “Financing order” shall mean means an order of the commission adopted in accordance with this article, which shall include, without limitation, a procedure to require the expeditious approval by the commission of periodic adjustments to fixed transition amounts included therein to ensure recovery of all transition costs and the costs of capital associated with the proposed provision, recovery, financing, or refinancing thereof, including the costs of issuing, servicing, and retiring the rate reduction bonds contemplated by the financing order. These With respect to financing orders providing for recovery of transition costs other than qualified costs, these adjustments shall not impose fixed transition amounts upon classes of customers who were not subject to the fixed transition amounts in the pertinent financing order.

(d)

(g) (1) “Fixed transition amounts” means, except with respect to financing orders providing for recovery of qualified costs, those nonbypassable rates and other charges, including, but not limited to, distribution, connection, disconnection, and termination rates and charges, that are authorized by the commission in a financing order to recover (1) transition costs, and (2) the costs of providing, recovering, financing, or refinancing the transition costs through a plan approved by the commission in the financing order, including the costs of issuing, servicing, and retiring rate reduction bonds.
(2) With respect to financing orders providing for recovery of qualified costs, “fixed transition amounts” means nonbypassable rates and other charges, and associated franchise fees and uncollectibles, including, but not limited to, distribution, connection, disconnection, and termination rates and charges, that are authorized by the commission in a financing order to allow the electrical corporation to recover all or any portion of both (A) qualified costs, and (B) the costs of providing, recovering, financing, or refinancing the qualified costs through a plan approved by the commission in the financing order, including, but not limited to, the costs of issuing, servicing and retiring rate reduction bonds. For the purposes of this article, those fixed transition amounts shall be imposed on a nonbypassable basis at a uniform rate per kilowatthour of electricity consumed. Fixed transition amounts pursuant to this paragraph do not constitute fixed transition amounts for purposes of Section 367.

If

(3) If requested by the electrical corporation in its application for a financing order, fixed transition amounts shall include nonbypassable rates and other charges to recover federal and state taxes whose recovery period is modified by the transactions approved in the financing order.

(e)

(h) “Rate reduction bonds” means bonds, notes, certificates of participation or beneficial interest, or other evidences of indebtedness or ownership, issued pursuant to an executed indenture or other agreement of a financing entity, the proceeds of which are used, directly or indirectly, to provide, recover, finance, or refinance transition costs, including, but not limited to, qualified costs, and to acquire transition property and that are directly or indirectly secured by, or payable from, transition property. Those bonds, notes, certificates of participation or beneficial interest, or other evidences of indebtedness or ownership issued to finance recovery of qualified costs shall also be referred to as “rate stabilization bonds.” Chapter 5 (commencing with Section 63070) of Division 1 of Title 6.7 of the Government Code is not applicable to the issuance of rate stabilization bonds.

(f)

(i) (1) “Transition costs” means the costs, and categories of costs, of an electrical corporation for generation-related assets and obligations, consisting of generation facilities, generation-related regulatory assets, nuclear settlements, and power purchase contracts, including, but not limited to, voluntary restructuring, renegotiations, or terminations thereof approved by the commission, that were being collected in commission-approved rates on December 20, 1995, and that may become uneconomic as a result of a competitive generation market in that those costs may not be recoverable in market prices in a competitive market, and appropriate costs incurred after December 20, 1995, for capital additions to generating facilities existing as of December 20, 1995, that the commission determines are reasonable and should be recovered, provided that these costs are necessary to maintain the facilities through December 31, 2001. Transition
(2) Transition costs shall also include the costs of refinancing or retiring of debt or equity capital of the electrical corporation, and associated federal and state tax liabilities.
(3) Transition costs shall also include qualified costs.
(4) (A) For the purposes of this article, except as otherwise provided in this paragraph, “qualified costs” means, with respect to each electrical corporation, all of the following:
(i) The “net undercollected amount” or other amount contemplated to be recovered by a dedicated rate component or components, in either case determined as provided in the applicable electric rate settlement agreement, as verified by the commission, in accordance with and to the extent provided in that settlement agreement. The State Auditor shall review the commission’s verification and make a report to the Legislature.
(ii) Interest associated with that net undercollected amount or other amount, to the extent provided and determined in accordance with the applicable settlement agreement.
(iii) The reasonable costs of providing, recovering, financing, or refinancing qualified costs through the applicable financing order, including the costs of issuing, servicing and retiring rate stabilization bonds.
(B) Costs shall be considered qualified costs recoverable by an electrical corporation even if they were incurred during periods during which the electrical corporation’s rates were set at levels prescribed by Sections 367 and 368. Qualified costs do not constitute fixed transition costs for purposes of Section 367.

(g)

(j) (1) “Transition property” means the property right created pursuant to this article including, without limitation, the right, title, and interest of an electrical corporation or its transferee:
(A) In and to the tariff established pursuant to a financing order, as adjusted from time to time in accordance with subdivision (c) of Section 841 and the financing order.
(B) To be paid the amount that is determined in a financing order to be the amount that the electrical corporation or its transferee is lawfully entitled to receive pursuant to the provision of this article and the proceeds thereof, and in and to all revenues, collections, claims, payments, money, or proceeds of or arising from the tariff or constituting fixed transition amounts that are the subject of a financing order including those nonbypassable rates and other charges referred to in subdivision (d) (g).
(C) In and to all rights to obtain adjustments to the tariff pursuant to the terms of subdivision (c) of Section 841 and the financing order.
(2) “Transition property” shall constitute a current property right notwithstanding the fact that rate reduction bonds have not been issued, or that the value of the property right will depend on consumers using electricity or, in those instances where consumers are customers of a particular electrical corporation, the electrical corporation performing certain services.
(3) For purposes of Sections 63010 and 63025.1 of the Government Code, “transition property” also shall mean certificates representing primarily interests in the property rights described in paragraphs (1) and (2).

SEC. 10.

 Section 841 of the Public Utilities Code is amended to read:

841.
 (a) (1) This paragraph does not apply to the recovery of qualified costs. An electrical corporation shall, by June 1, 1997, and may from time to time thereafter apply to the commission for a determination that certain transition costs may be recovered through fixed transition amounts, which would therefore constitute transition property under this article. An electrical corporation may request this determination by the commission in separate proceedings or in an order instituting investigation or order instituting rulemaking, or both. The electrical corporation shall in its application specify that the residential and small commercial customers as defined in subdivision (h) of Section 331 would benefit from reduced rates through the issuance of rate reduction bonds. The commission shall designate fixed transition amounts as recoverable in one or more financing orders if the commission determines, as part of its findings in connection with the financing order, that the designation of the fixed transition amounts, and issuance of rate reduction bonds in connection with some or all of the fixed transition amounts would reduce rates that residential and small commercial customers would have paid if the financing order were not adopted. These customers shall continue to pay fixed transition amounts after December 31, 2001, until the bonds are paid in full by the financing entity. No electrical corporation shall be found to have acted imprudently or unreasonably for failing to amend a power purchase contract where the amendment would modify or waive an existing requirement that the seller be a qualifying facility pursuant to federal law.
(2) This paragraph applies to recovery of qualified costs. The commission shall verify the amount of the net undercollected amount or other amount that by the terms of the applicable settlement agreement is to be recovered through a dedicated rate component and nonbypassable charge and verified by the commission for each electrical corporation within 30 days of the date of submission of the amount to be verified. The State Auditor shall review the verification and make a report to the Legislature. To the extent that the verification and any adjustments are not complete by that date, the net undercollected amount shall be the amount submitted by the electrical corporation. The commission shall review the net undercollected amount or other amount that by the terms of the applicable settlement agreement is to be recovered through a dedicated rate component and nonbypassable charge solely for the purpose of verifying recorded amounts and making any adjustments resulting from that verification in accordance with the applicable settlement agreement. Notwithstanding any other provision of law, qualified costs shall be recoverable in accordance with this article and may not be reviewed by the commission or by any other legislative, administrative, or judicial body for reasonableness. Nothing in this paragraph may limit the authority of the Federal Energy Regulatory Commission to review the justness and reasonableness of these amounts.
(3) This paragraph applies to financing orders providing for recovery of qualified costs. Notwithstanding any other provision of law, except as provided in Section 840, the commission shall establish, not later than 60 days from the date of the filing of an application of an electrical corporation, accompanied by a certified copy of a settlement agreement entered into by that electrical corporation, a nonbypassable charge designed to enable an electrical corporation to recover the qualified costs specified by the settlement agreement over an amortization period between 10 and 15 years. The nonbypassable charge shall be in the form of fixed transition amounts established by the adoption of financing orders as set forth in this section. Customers shall continue to pay the nonbypassable charge in accordance with the financing orders until the electrical corporation has recovered the qualified costs set forth in the financing orders and, if rate stabilization bonds have been issued in connection therewith, until those bonds are paid in full by the financing entity.
(b) (1) This paragraph does not apply to financing orders providing for recovery of qualified costs. The commission may issue financing orders in accordance with this article to facilitate the provision, recovery, financing, or refinancing of transition costs. A financing order may be adopted only upon the application of an electrical corporation and shall become effective in accordance with its terms only after the electrical corporation files with the commission the electrical corporation’s written consent to all terms and conditions of the financing order. A financing order may specify how amounts collected from a customer shall be allocated between fixed transition amounts and other charges.
(2) This paragraph applies to financing orders providing for recovery of qualified costs. Except as provided in Sections 846 and 848, the commission shall issue financing orders in accordance with this article to facilitate the provision, recovery, financing, or refinancing of qualified costs. A financing order shall be adopted only upon the application of an electrical corporation and shall become effective in accordance with its terms only after the electrical corporation files with the commission the electrical corporation’s written consent to all terms and conditions of the financing order. A financing order shall specify conditions, consistent with the related settlement agreement, to the implementation of the terms of that financing order. Notwithstanding Section 1756, Section 1759, or any other provision of law, no court, except the Supreme Court, has jurisdiction to review, reverse, correct, or annul any financing order, or to suspend or delay the execution or operation thereof, or to enjoin, restrain, or interfere with the commission in the performance of its official duties in respect thereof, as provided by law and the rules of the court.
(c) (1) This paragraph does not apply to financing orders providing for recovery of qualified costs. Notwithstanding Section 455.5, Section 1708, or any other provision of law, except as otherwise provided in this subdivision with respect to transition property that has been made the basis for the issuance of rate reduction bonds, the financing orders and the fixed transition amounts shall be irrevocable and the commission shall not have authority either by rescinding, altering, or amending the financing order or otherwise, to revalue or revise for ratemaking purposes the transition costs, or the costs of providing, recovering, financing, or refinancing the transition costs, determine that the fixed transition amounts or rates are unjust or unreasonable, or in any way reduce or impair the value of transition property either directly or indirectly by taking fixed transition amounts into account when setting other rates for the electrical corporation; nor shall the amount of revenues arising with respect thereto be subject to reduction, impairment, postponement, or termination. Except as otherwise provided in this subdivision, the State of California does hereby pledge and agree with the owners of transition property and holders of rate reduction bonds that the state shall neither limit nor alter the fixed transition amounts, transition property, financing orders, and all rights thereunder until the obligations, together with the interest thereon, are fully met and discharged, provided nothing contained in this section shall preclude the limitation or alteration if and when adequate provision shall be made by law for the protection of the owners and holders. The bank as agent for the state is authorized to include this pledge and undertaking for the state in these obligations. Notwithstanding any other provision of this section, the commission shall approve the adjustments to the fixed transition amounts as may be necessary to ensure timely recovery of all transition costs that are the subject of the pertinent financing order, and the costs of capital associated with the provision, recovery, financing, or refinancing thereof, including the costs of issuing, servicing, and retiring the rate reduction bonds contemplated by the financing order. The adjustments shall not impose fixed transition amounts upon classes of customers who were not subject to the fixed transition amounts in the pertinent financing order.
(2) This paragraph applies to financing orders providing for recovery of qualified costs. Notwithstanding Section 455.5, Section 1708, or any other provision of law, except as otherwise provided in this subdivision, the financing orders and the fixed transition amounts shall, upon the effectiveness of the financing orders, be irrevocable and the commission may not have authority either by rescinding, altering, or amending the financing order or otherwise, to revalue or revise for ratemaking purposes the transition costs, or the costs of providing, recovering, financing, or refinancing the transition costs, determine that the fixed transition amounts or rates are unjust or unreasonable, or in any way reduce or impair the value of transition property either directly or indirectly by taking fixed transition amounts into account when setting other rates for the electrical corporation; nor shall the amount of revenues arising with respect thereto be subject to reduction, impairment, postponement, or termination. Except as otherwise provided in this paragraph, the State of California does hereby pledge and agree with the electrical corporation, the owners of transition property, and holders of rate stabilization bonds that the state shall neither limit nor alter the fixed transition amounts, transition property, financing orders, and all rights thereunder until the electrical corporation has recovered all qualified costs, and if rate stabilization bonds have been issued in connection therewith, obligations under those bonds, together with the interest thereon, are fully met and discharged, provided that nothing contained in this section shall preclude the limitation or alteration of these matters if adequate provision is made by law for the protection of the owners and holders. That pledge shall be deemed to be part of a financing order upon adoption thereof by the commission. Notwithstanding any other provision of this section, the commission shall approve the adjustments to the fixed transition amounts as it determines to be necessary to ensure timely recovery of all qualified costs that are the subject of the pertinent financing order, and the cost of capital associated with the provision, recovery, financing, or refinancing thereof, including the cost of issuing, servicing, and retiring any rate stabilization bonds issued to finance qualified costs contemplated by the financing order.
(d) (1) Financing orders issued under this article do not constitute a debt or liability of the state or of any political subdivision thereof, other than the financing entity, and do not constitute a pledge of the full faith and credit of the state or any of its political subdivisions, other than the financing entity, but are payable solely from the funds provided therefor under this article and shall be consistent with Sections 1 and 18 of Article XVI of the California Constitution. This subdivision shall in no way preclude bond guarantees or enhancements pursuant to this article. All the bonds shall contain on the face thereof a statement to the following effect:
“Neither the full faith and credit nor the taxing power of the State of California is pledged to the payment of the principal of, or interest on, this bond.”
(2) The issuance of bonds under this article shall not directly, indirectly, or contingently obligate the state or any political subdivision thereof to levy or to pledge any form of taxation therefor or to make any appropriation for their payment. Nothing in this section shall prevent, or be construed to prevent, the financing entity from pledging the full faith and credit of the infrastructure bank fund to the payment of bonds or issuance of bonds authorized pursuant to this article.
(e) The commission shall establish procedures for the expeditious processing of applications for financing orders, including the approval or disapproval thereof within 120 days, or in the case of applications for financing orders providing for recovery of qualified costs, 60 days, of the date of the electrical corporation’s making application therefor. The commission shall provide in any financing order for a procedure for the expeditious approval by the commission of periodic adjustments to the fixed transition amounts that are the subject of the pertinent financing order, as required by subdivision (c). The procedure shall require the commission to determine whether the adjustments are required on each anniversary of the issuance of the financing order, and at the additional intervals as may be provided for in the financing order, and for the adjustments, if required, to be approved within 90 days of each anniversary of the issuance of the financing order, or of each additional interval provided for in the financing order.
(f) Fixed transition amounts shall constitute transition property when, and to the extent that, a financing order authorizing the fixed transition amounts has become effective in accordance with this article, and the transition property shall thereafter continuously exist as property for all purposes with all of the rights and privileges of this article for the period and to the extent provided in the financing order, but in any event until the rate reduction bonds are paid in full, including all principal, interest, premium, costs, and arrearages thereon.
(g) Any surplus fixed transition amounts in excess of the amounts necessary to pay principal, premium, if any, interest and expenses of the issuance of the rate reduction bonds shall be remitted to the financing entity and may be used to benefit residential and small commercial customers, or electric customers in the case of surplus fixed transition amounts relating to qualified costs, if this would not result in a recharacterization of the tax, accounting, and other intended characteristics of the financing, including, but not limited to, the following:
(1) Avoiding the recognition of debt on the electrical corporation’s balance sheet for financial accounting and regulatory purposes.
(2)Treating the rate reduction bonds as debt of the electrical corporation or its affiliates for federal income tax purposes and state franchise tax purposes.

(3)

(2) Treating the transfer of the transition property by the electrical corporation as a true sale for bankruptcy purposes.

(4)

(3) Avoiding any adverse impact of the financing on the electrical corporation’s credit rating.
(h) The fixed transition amounts relating to qualified costs shall be disconnectible charges.

SEC. 11.

 Section 842 of the Public Utilities Code is amended to read:

842.
 (a) Financing Except as provided in a settlement agreement with respect to rate reduction bonds issued to finance the recovery of qualified costs, financing entities may issue rate reduction bonds upon approval by the commission in the pertinent financing orders. With respect to rate reduction bonds issued to finance recovery of qualified costs, the terms and conditions of those bonds shall be approved by the Director of Finance in accordance with the applicable settlement agreement. That approval shall be conclusive and binding, and is not subject to review or contest except in accordance with the settlement agreement. In connection with that approval, the Director of Finance may engage those independent consultants as he or she determines to be appropriate. In order to permit the Director of Finance to contract for those purposes, the contract or agreement with any independent consultant may include provision for the indemnification of parties thereto, however, that contract or agreement may not include provisions for the indemnification, including indemnification for any costs of defense, of any party for acts or omissions involving gross negligence, recklessness, or willful misconduct by that party or by the party’s employees, agents, or contractors. Rate reduction bonds shall be nonrecourse to the credit or any assets of the electrical corporation, other than the transition property as specified in the pertinent financing order.
(b) Electrical corporations may sell and assign all or portions of their interest in transition property to an affiliate. Electrical corporations or their affiliates may sell or assign their interests to one or more financing entities that make that property the basis for issuance of rate reduction bonds to the extent approved in the pertinent financing orders. Electrical corporations, their affiliates, or financing entities may pledge or grant a security interest in transition property as collateral, directly or indirectly, for rate reduction bonds to the extent approved in the pertinent financing orders providing for a security interest in the transition property, in the manner as set forth in Section 843. In addition transition property may be sold or assigned by (1) the financing entity or a trustee for the holders of rate reduction bonds in connection with the exercise of remedies upon a default, or (2) any person acquiring the transition property after a sale or assignment pursuant to this subdivision.
(c) To the extent that any interest in transition property is so sold or assigned, or is so pledged as collateral or a security interest granted therein, the commission shall authorize the electrical corporation to contract with the financing entity that it will continue to operate its system to provide service to its customers, will collect amounts in respect of the fixed transition amounts for the benefit and account of the financing entity, and will account for and remit these amounts to or for the account of the financing entity. Contracting with the financing entity in accordance with that authorization shall not impair or negate the characterization of the sale, assignment, or pledge, or grant of security interests as an absolute transfer, a true sale, or security interest, as applicable. With respect to fixed transition amounts relating to financing orders providing for recovery of qualified costs, the obligation of the electrical corporation to collect and remit the fixed transition amounts consistent with a financing order shall continue irrespective of whether that electrical corporation is providing electric power or other services to the retail customers obligated to pay those fixed transition amounts.
(d) Notwithstanding Section 1708 or any other provision of law, any requirement under this article or a financing order that the commission take action with respect to the subject matter of a financing order shall be binding upon the commission, as it may be constituted from time to time, and any successor agency exercising functions similar to the commission and the commission shall have no authority to rescind, alter, or amend that requirement in a financing order. The approval by the commission in a financing order of the issuance by an electrical corporation or a financing entity of rate reduction bonds shall include the approvals, if any, as may be required by Article 5 (commencing with Section 816) and Section 701.5. Nothing in Section 701.5 shall be construed to prohibit the issuance of rate reduction bonds upon the terms and conditions as may be approved by the commission in a financing order. Section 851 shall not be applicable to the transfer or pledge of, or grant of a security interest in, transition property, the issuance of rate reduction bonds, or related transactions approved in a financing order.

SEC. 12.

 Section 843 of the Public Utilities Code is amended to read:

843.
 (a) A security interest in transition property is valid, is enforceable against the pledgor or grantor and third parties, subject to the rights of any third parties holding security interests in the transition property perfected in the manner described in this section, and attaches when all of the following have taken place:
(1) The commission has issued the financing order authorizing the fixed transition amounts included in the transition property.
(2) Value has been given by the pledgees of the transition property.
(3) The pledgor or grantor has signed a security agreement covering the transition property.
(b) A valid and enforceable security interest in transition property is perfected when it has attached and when a financing statement has been filed in accordance with Chapter 5 (commencing with Section 9501) of Division 9 of the Commercial Code naming the pledgor of the transition property as “debtor” and identifying the transition property. Any description of the transition property shall be sufficient if it refers to the financing order creating the transition property. A copy of the financing statement shall be filed with the commission by the electrical corporation that is the pledgor, grantor, or transferor of the transition property, and the commission may require the electrical corporation to make other filings with respect to the security interest in accordance with procedures it may establish, provided that the filings shall not affect the perfection of the security interest.
(c) A perfected security interest in transition property is a continuously perfected security interest in all revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Conflicting security interests shall rank according to priority in time of perfection. Transition property shall constitute property for all purposes, including for contracts securing rate reduction bonds, whether or not the revenues and proceeds arising with respect thereto have accrued.
(d) Subject to the terms of the security agreement covering the transition property and the rights of any third parties holding security interests in the transition property perfected in the manner described in this section, the validity and relative priority of a security interest created under this section is not defeated or adversely affected by the commingling of revenues arising with respect to the transition property with other funds of the electrical corporation that is the pledgor or transferor of the transition property, or by any security interest in a deposit account of that electrical corporation perfected under Division 9 (commencing with Section 9101) of the Commercial Code into which the revenues are deposited. Subject to the terms of the security agreement, upon compliance with the requirements of Section 9311 of the Commercial Code, the pledgees or grantees of the transition property shall have a perfected security interest in all cash and deposit accounts of the electrical corporation in which revenues arising with respect to the transition property have been commingled with other funds, but the perfected security interest shall be limited to an amount not greater than the amount of the revenues with respect to the transition property received by the electrical corporation within 12 months before (1) any default under the security agreement or (2) the institution of insolvency proceedings by or against the electrical corporation, less payments from the revenues to the pledgees or grantees during that 12-month period.
(e) If an event of default occurs under the security agreement covering the transition property, the pledgees or grantees of the transition property, subject to the terms of the security agreement, shall have all rights and remedies of a secured party upon default under Division 9 (commencing with Section 9101) of the Commercial Code, and shall be entitled to foreclose or otherwise enforce their security interest in the transition property, subject to the rights of any third parties holding prior security interests in the transition property perfected in the manner provided in this section. In addition, the commission may require, in the financing order creating the transition property, that, in the event of default by the electrical corporation in payment of revenues arising with respect to the transition property, the commission and any successor thereto, upon the application by the pledgees, grantees, or transferees, including transferees under Section 844, of the transition property, and without limiting any other remedies available to the pledgees, grantees, or transferees by reason of the default, shall order the sequestration and payment to the pledgees or transferees of revenues arising with respect to the transition property. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor, pledgor, grantor, or transferor of the transition property. Any surplus in excess of amounts necessary to pay principal, premium, if any, interest, costs, and arrearages on the rate reduction bonds, and other costs arising under the security agreement, shall be remitted to the debtor or to the pledgor or transferor.
(f) Section 5451 of the Government Code shall not apply to any pledge of transition property by a financing entity. Sections 9204 and 9205 of the Commercial Code shall apply to a pledge of transition property by an electrical corporation, an affiliate of an electrical corporation, or a financing entity.
(g) This section sets forth the terms by which a consensual security interest can be created and perfected in the transition property. Unless otherwise ordered by the commission with respect to any series of rate reduction bonds on or prior to the issuance of the series, there shall exist a statutory lien as provided in this subdivision. Upon the effective date of the financing order, there shall exist a first priority lien on all transition property then existing or thereafter arising pursuant to the terms of the financing order. This lien shall arise by operation of this section automatically without any action on the part of the electrical corporation, any affiliate thereof, the financing entity, or any other person. This lien shall secure all obligations, then existing or subsequently arising, to the holders of the rate reduction bonds issued pursuant to the financing order, the trustee or representative for the holders, and any other entity specified in the financing order. The persons for whose benefit this lien is established shall, upon the occurrence of any defaults specified in the financing order, have all rights and remedies of a secured party upon default under Division 9 (commencing with Section 9101) of the Commercial Code, and shall be entitled to foreclose or otherwise enforce this statutory lien in the transition property. This lien shall attach to the transition property regardless of who shall own, or shall subsequently be determined to own, the transition property including any electrical corporation, any affiliate thereof, the financing entity, or any other person. This lien shall be valid, perfected, and enforceable against the owner of the transition property and all third parties upon the effectiveness of the financing order without any further public notice; provided, however, that any person may, but shall not be required to, file a financing statement in accordance with subdivision (b). Financing statements so filed may be “protective filings” and shall not be evidence of the ownership of the transition property.
A perfected statutory lien in transition property is a continuously perfected lien in all revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Conflicting liens shall rank according to priority in time of perfection. Transition property shall constitute property for all purposes, including for contracts securing rate reduction bonds, whether or not the revenues and proceeds arising with respect thereto have accrued.
In addition, the commission may require, in the financing order creating the transition property, that, in the event of default by the electrical corporation in payment of revenues arising with respect to transition property, the commission and any successor thereto, upon the application by the beneficiaries of the statutory lien, and without limiting any other remedies available to the beneficiaries by reason of the default, shall order the sequestration and payment to the beneficiaries of revenues arising with respect to the transition property. Any order shall remain in full force and effect notwithstanding any bankruptcy, reorganization, or other insolvency proceedings with respect to the debtor, pledgor, or transferor of the transition property. Any surplus in excess of amounts necessary to pay principal, premium, if any, interest, costs, and arrearages on the rate reduction bonds, and other costs arising in connection with the documents governing the rate reduction bonds, shall be remitted to the debtor or to the pledgor or transferor.

SEC. 13.

 Section 846 of the Public Utilities Code is amended to read:

846.
 The authority of the commission to issue financing orders providing for recovery of transition costs other than qualified costs pursuant to Section 841 shall expire on December 31, 2015. The authority of the commission to issue financing orders providing for recovery of qualified costs shall expire on December 15, 2006. The expiration of the authority shall have no effect upon financing orders adopted by the commission pursuant to this article or any transition property arising therefrom, or upon the charges authorized to be levied thereunder, or the rights, interests, and obligations of the electrical corporation or a financing entity or holders of transition bonds pursuant to the financing order, or the authority of the commission to monitor, supervise, or take further action with respect to the order in accordance with the terms of this article and of the order.

SEC. 14.

 Section 846.2 of the Public Utilities Code is amended to read:

846.2.
 (a) Notwithstanding subdivision (c) of Section 841, for any electrical corporation that ended its rate freeze period described in subdivision (a) of Section 368 prior to July 15, 1999, the commission may order a fair and reasonable credit to ratepayers of any excess rate reduction bond proceeds.
(b) “Excess rate reduction bond proceeds,” as used in this section, means proceeds from the sale of rate reduction bonds authorized by commission financing orders issued pursuant to this article that are subsequently determined by the commission to be in excess of the amounts necessary to provide the 10-percent rate reduction during the period when the rates were frozen pursuant to subdivision (a) of Section 368.
(c) This section does not apply to rate reduction bonds related to recovery of qualified costs.

SEC. 15.

 Section 848 is added to the Public Utilities Code, to read:

848.
 The commission may not establish a nonbypassable charge pursuant to subdivision (a) of Section 841 for the purpose of providing for the recovery of qualified costs or issue a financing order pursuant to subdivision (b) of Section 841, with regard to an electrical corporation, unless both of the following conditions have been met:
(a) The electrical corporation has entered into a settlement agreement and the Director of Finance has advised the commission that the electrical corporation has entered into the definitive agreements which by the terms of that settlement agreement are required to be entered into as of the time of the taking of that action.
(b) The electrical corporation has consented to an order of the commission providing for cost-based rates to apply to generation assets owned by the electrical corporation to the extent provided in the applicable settlement agreement and for the period provided in the settlement agreement and obligating the electrical corporation not to apply to the commission for approval to sell those generation assets for the period provided in the settlement agreement.

SEC. 16.

 Section 1731 of the Public Utilities Code is amended to read:

1731.
 (a) The commission shall set an effective date when issuing an order or decision. The commission may set the effective date of an order or decision prior to the date of issuance of the order or decision.
(b) After any order or decision has been made by the commission, any party to the action or proceeding, or any stockholder or bondholder or other party pecuniarily interested in the public utility affected, may apply for a rehearing in respect to any matters determined in the action or proceeding and specified in the application for rehearing. The commission may grant and hold a rehearing on those matters, if in its judgment sufficient reason is made to appear. No cause of action arising out of any order or decision of the commission shall accrue in any court to any corporation or person unless the corporation or person has filed an application to the commission for a rehearing within 30 days after the date of issuance or within 10 days after the date of issuance in the case of an order issued pursuant to either Article 5 (commencing with Section 816) or Article 6 (commencing with Section 851) of Chapter 4 relating to security transactions and the transfer or encumbrance of utility property, or a financing order issued in connection with qualified costs pursuant to Article 5.5 (commencing with Section 840) of Chapter 4. For purposes of this article, “date of issuance” means the date when the commission mails the order or decision to the parties to the action or proceeding.

SEC. 17.

 Section 9601 of the Public Utilities Code is amended to read:

9601.
 (a) Except with respect to supply options of the nature specified in Section 218, with the exception of paragraph (3) of subdivision (b) of that section, as it existed on December 20, 1995, no person, corporation, electrical corporation, or local publicly owned electric utility or other governmental entity other than a retail customer’s existing electric service provider as of December 20, 1995, shall provide partial or full electric service to a retail customer of a local publicly owned electric utility unless the customer first confirms in writing an obligation to pay, through tariff or otherwise, to the utility currently providing electric service, a nonbypassable generation-related severance fee or transition charge established by the regulatory body for that utility. The severance fee or transition charge shall be paid directly to the local publicly owned utility providing electricity service in the service area in which the consumer is located.
(b) Except as provided in subdivision (a) of Section 374, no local publicly owned electric utility or other governmental entity shall provide partial or full electric service to a retail customer of an electrical corporation unless the customer of that electrical corporation first confirms in writing an obligation to pay, through tariff or otherwise, to the electrical corporation currently providing electric service, a nonbypassable generation-related transition charge established by the regulatory body for that electrical corporation, and any nonbypassable fixed transition amount established for that electrical corporation for recovery of qualified costs pursuant to Article 5.5 (commencing with Section 840) of Chapter 4 of Part 1 of Division 1. The charge shall be paid directly to the electrical corporation providing electricity in the service area in which the consumer is located.
(c) No local publicly owned electric utility or electrical corporation shall sell electric power to the retail customers of another local publicly owned electric utility or electrical corporation unless the first utility has agreed to let the second utility make sales of electric power to the retail customers of the first utility.

SEC. 18.

 Section 80002 of the Water Code is amended to read:

80002.
 Nothing in this division shall may be construed to reduce or modify any electrical corporation’s obligation to serve, except to the extent set forth in a definitive agreement implementing the procurement obligations of the department as contemplated by a settlement agreement, as defined in Section 840 of the Public Utilities Code. The department may enter into those agreements with electrical corporations and other parties in furtherance of the foregoing, as it determines to be appropriate. The commission shall issue orders it determines are necessary to carry out this section. Nothing in this section shall may be construed to obligate the department for any procurement cost obligations of any electrical corporation that may have existed as of the effective date of this section February 1, 2001.

SEC. 19.

 Section 80110 of the Water Code is amended to read:

80110.
 The department shall retain title to all power sold by it to the retail end use customers. The department shall be entitled to recover, as a revenue requirement, amounts and at the times necessary to enable it to comply with Section 80134, and shall advise the commission as the department determines to be appropriate. Such revenue requirements may also include any advances made to the department hereunder or hereafter for purposes of this division, or from the Department of Water Resources Electric Power Fund, and General Fund moneys expended by the department pursuant to the Governor’s Emergency Proclamation dated January 17, 2001. For purposes of this division and except as otherwise provided in this section, the Public Utility Commission’s authority as set forth in Section 451 of the Public Utilities Code shall apply, except any just and reasonable review under Section 451 shall be conducted and determined by the department. The commission may enter into an agreement with the department with respect to charges under Section 451 for purposes of this division, and that agreement shall have the force and effect of a financing order adopted in accordance with Article 5.5 (commencing with Section 840) of Chapter 4 of Part 1 of Division 1 of the Public Utilities Code, as determined by the commission. In no case shall the commission increase the electricity charges in effect on the date that the act that adds this section becomes effective for residential customers for existing baseline quantities or usage by those customers of up to 130 percent of existing baseline quantities, until such time as the department has recovered the costs of power it has procured for the electrical corporation’s retail end use customers as provided in this division. After the passage of such period of time after the effective date of this section as shall be determined by the commission, the right of retail end use customers pursuant to Article 6 (commencing with Section 360) of Chapter 2.3 of Part 1 of Division 1 of the Public Utilities Code to acquire service from other providers shall be suspended until the department no longer supplies power hereunder, provided however that the commission shall authorize direct transactions on an open enrollment basis not less than 2 times each year coincident with the expiration of power purchase contracts entered into hereunder. In order to facilitate direct transactions authorized pursuant to this section, the Governor and the department with the assistance of the electrical corporations, shall judiciously pursue renegotiations of power purchase contracts entered into prior to July 1, 2001. The department shall have the same rights with respect to the payment by retail end use customers for power sold by the department as do providers of power to such customers.

SEC. 20.

 (a) Electrical corporations who have entered into an electric rate settlement agreement as described in Section 840 of the Public Utilities Code shall agree to provide expanded access for their retail customers to electricity generated from eligible renewable resources.
(b) The programs shall target enrollment for retail customers in renewable-only customer portfolios that allow the electrical corporations to purchase all available eligible renewable resources for customers enrolling in the programs for a specified monthly fee not to exceed the fees currently charged by municipal utilities in the state for those programs.
(c) Enrollment shall be at the election of the retail customers, and the electrical corporations subject to settlement agreements shall provide information about the renewable portfolio programs to all end use customers through television, radio, and print advertising, and through information contained in monthly customers bills.

SEC. 21.

 The Public Utilities Commission shall prepare and submit to the Governor and the Legislature annual reports as to the implementation of the act adding this section, including, but not limited to, its actions pursuant to Section 377.

SEC. 22.

 If any part of this act, or the application thereof to any person or circumstance, is held invalid, the remainder of this act, including the application of that part or provision to other persons or circumstances, shall not be affected thereby, and this act shall otherwise continue in full force and effect and shall otherwise be fully operative. To this end, the provisions of this act, and each of them, are hereby declared to be severable.

SEC. 23.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.