AB 1890 adds several new sections to the PU Code, and endorses, for the most part, this Commission’s approach to transition costs. With certain exceptions, the legislation provides for a nonbypassable CTC, to be levied on all customers, whether taking service as full service utility customers (or bundled customers), procuring their own energy as direct access customers, or departing the utilities’ transmission and
distribution systems altogether (departing load customers). While the Preferred Policy Decision provided for a rate cap and recovery of transition costs through 2003, AB 1890 provides for a rate freeze at the June 10, 1996 rate levels and the recovery of the majority of transition costs by December 31, 2001. This rate freeze is linked to transition cost recovery; i.e., if generation-related uneconomic costs are recovered prior to December 31, 2001, the rate freeze will end.
In addition to the general categories of transition costs found eligible for recovery in the Preferred Policy Decision, § 367 provides for transition cost recovery of Biennial Resource Proceeding Update (BRPU) settlement costs, capital additions for units existing as of December 20, 1995 and which we find reasonable for maintaining facilities until 2002, Edison’s fixed fuel contracts, and an expanded definition of employee-related transition costs. Section 367 also specifies the period during which particular transition costs may be recovered. Transition cost collection by means of the CTC begins January 1, 1998, simultaneously with the implementation of direct access, the ISO, and the Power Exchange. Costs of generation-related assets and obligations must be collected by December 31, 2001. Costs associated with power purchase contracts, including those QF contracts in place as of December 20, 1995, may be collected for the duration of the contract.
Employee-related transition costs are defined in § 375, which provides that these costs shall be added to the uneconomic generation-related costs and that recovery shall extend through December 31, 2006. In addition, the utilities are permitted to extend the collection period though March 31, 2002 to the extent collection of transition costs is impacted by CTC exemptions, the costs of renewable programs, or BRPU settlement costs, with certain additional provisions. Finally, § 376 provides that, to the extent that the costs of programs to accommodate implementation of direct access, the Power Exchange, and the ISO reduce the ability of the utilities to collect generation-related transition costs, those costs may be collected after December 31, 2001 in an amount equal to Commission-approved implementation costs. No time limit is specified.
Most importantly, in order to determine the transition costs for generation-related assets, we must net the negative (above-market) and positive (below-market) transition costs of all utility-owned generation-related assets. Valuation of these assets must occur by year-end 2001. [ For certain assets, market valuation is being addressed in PG&E’s and Edison’s divestiture applications (Application (A.) 96-11-020 and A.96-11-046, respectively). ] Significantly, the provision that the allocation of transition costs shall not result in rate increases beyond June 10, 1996 levels requires that the CTC portion of a given bill be computed on a residual basis; i.e., the difference between the total rate and all other charges, including the Power Exchange price. [ It is very important to distinguish between transition costs and the competition transition charge or CTC. The CTC will be delineated on each applicable customer’s bill as a separate nonbypassable charge, which will generate revenue to allow the utilities to recoup their uneconomic transition costs.]
Section 368 delineates the criteria for plans for the recovery of transition costs identified in § 367. Among other criteria, this section requires that utilities amortize uneconomic costs such that their recorded rate of return does not exceed authorized rate of return on uneconomic assets and that utilities are at risk for transition costs not recovered during this period. We addressed the utilities’ cost recovery plans in D.96-12-077.
In addition, § 381(d) states that the Commission shall extend the period for transition cost collection until March 31, 2002 to ensure that the aggregate portion of the research, environmental, and low-income funds allocated to renewable resources shall equal $540 million and that up to $50 million for resolving outstanding issues related to exemptions, and up to $90 million for resolving outstanding issues related to Edison’s BRPU contracts, shall be collected during this extension.