CCC PPPPP U U CCC N N EEEEE W W W SSS C C P p U U C C NN N E W W W S S C P P U U C N N N E W W W S C PPPPP U U C N N N EEE W W W W SSS C P U U C N N N E WW WW S C C P U U C C N NN E W W S S CCC P UUUU CCC N N EEEEE W W SSS California Public Utilities Commission 505 Van Ness Avenue, Room 5301 San Francisco, CA 94102 CONTACT: Dianne Dienstein December 20, 1996 CPUC - 100 415-703-2423 (R.94-04-031/I.94-04-032) CPUC REVISED ROADMAP FOR ELECTRIC INDUSTRY RESTRUCTURING This is a revised press release on the Commission's updated procedural plan for implementing electric industry restructuring otherwise referred to as "Roadmap II". On December 20, 1996, the California Public Utilities Commission issued Roadmap II - an update to implementing electric industry restructuring in California which incorporates requirements of recently-enacted Assembly Bill 1890 (Stats 1996, Ch. 854). The Commission left open the possibility that the Roadmap II schedules may change somewhat, but emphasized that they represent milestones to assure the beginning of a new electric industry by January 1, 1998, which requires coordination of many different proceedings. Commission policy and AB 1890 emphasize ensuring electric system reliability. The Committee for Regional Electric Power Cooperation is working to set up enforceable reliability standards throughout the West, and the Commission will work closely with the Federal Energy Regulatory Commission, other states and utilities to ensure system reliability. California will enter into an agreement with other western states to allow enforcement of reliability standards on the region's utilities. By March 31, 1997, the Commission will adopt standards for maintenance of utility distribution systems. To ensure that during transition to the new electricity market, utilities do not reduce maintenance, the Commission issued proposed inspection standards in November, will issue tree-trimming standards soon, and will actively monitor utility compliance. - more - While AB 1890 codifies the Commission's plan to bring competition in electric generation to California by January 1, 1998, it changes some aspects. As a result, the Commission will initiate some new proceedings and change the scope of others. Following passage of AB 1890, the Commission sought comments from parties involved in the proceeding on the effects of the new law on: direct access, voluntary utility divestiture of 50 percent of fossil-fueled generation plants, market power, return on equity, the mandatory buy-sell requirements, the interim competition transition charge, and the applicability of the California Environmental Quality Act (CEQA). Direct Access On the question of when competition should be available to every customer - direct access - AB 1890 is in accord with the Commission's view that all customers should be free to choose from among competing electricity suppliers, and that direct access should begin no later than January 1, 1998. AB 1890 does impact timing of full direct access by requiring that all customers have this option by January 1, 2002. Threshold issues such as whether a phase-in of direct access is necessary, or if there is a phase-in program, how it will be done, will be addressed in a Commission decision anticipated in February 1997. Issues related to consumer protection and education are also expected to be included in the decision. Other issues will be addressed in a subsequent decision expected in May 1997. Consumer Protection and Education To protect consumers, AB 1890 mandates registration of energy service providers who intend to serve residential and small commercial customers, including registration of public agencies, cities, counties or special districts who aggregate or sell electric services to residential and small commercial customers. The Commission will compile and investigate complaints consumers may have against aggregators, and this and other information will be available to consumers. The Commission recognizes the need for participation of consumer advocates and other parties involved in low-income - more - programs particularly when considering issues related to consumer protection and education. Following the guidance provided in the Commission's February decision on threshold direct access issues, parties can suggest consumer protection rules in March 1997. By May 1997, the Commission hopes to issue, for comment, proposed consumer protection rules. Utility Voluntary Divestiture of Generation Plants The Commission concluded that utility voluntary divestiture of 50 percent of gas-fired generation is consistent with AB 1890, and enables the Commission to proceed with examining market power issues relating to divestiture. The policy to allow a utility an increase in the rate of return on equity of up to 10 basis points for each 10 percent of fossil generating capacity divested remains in place. Independent System Operator The Federal Energy Regulatory Commission (FERC) will determine which facilities will be under operational control of the Independent System Operator (ISO). Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison have already requested FERC approval to transfer operation control of certain transmission facilities to the ISO, and proposed how the ISO operate and transmission access and pricing rules for the ISO grid. Operating protocols, specific service agreements, tariff terms and conditions, and rate schedules under which the ISO will arrange transmission and related services have not yet been developed. AB 1890 affects several aspects of the ISO including the access charge for transmission service, governance and organization of the ISO and Power Exchange (PX). It expands the ISO's responsibilities, including immediate ISO participation in FERC proceedings. And it requires direct access reciprocity within California. - more - Buy/Sell Requirements The Commission concluded that the mandatory requirement for utilities to sell their generation output to the Power Exchange (PX) and buy power to supply their customers from the Power Exchange is not inconsistent with AB 1890, but that the requirement should end on December 31, 2001, consistent with the time-frame for recovery of most utility transition costs. Ratesetting Issues A new proceeding called the Revenue Adjustment Proceeding (RAP) which will begin in 1998 and annually review, track, and compare each utility's authorized revenue requirements with the actual amounts spent. This proceeding will make any necessary adjustments or updates due to the authorized revenues for performance-based ratemaking, power purchase contracts, public purpose programs, nuclear facilities, nuclear decommissioning, transition costs and other proceedings. AB 1890 freezes rates at June 10, 1996 levels, and lowers rates for residential and small commercial customers by at least 10 percent beginning in 1998. Under the rate freeze, total rate levels are fixed. The sum of all rate components, such as charges for generation, transmission, distribution, competition transition, and public purpose programs cannot exceed the frozen rate level. Unbundling applications were filed on December 6 to separate the various rate components. Further unbundling of such services as metering and billing will be considered separately. A hearing on this matter will be held in January. Utilities have recommended that the Competition Transition Charge (CTC) be the difference between the frozen rate minus transmission, distribution, nuclear decommissioning, public purpose and PX energy charges and, for residential and small commercial customers, possibly a financing surcharge. Because the PX price will vary with time, determination of the CTC for direct access customers requires the PX price. This methodology will be further developed in the unbundling applications filed on December 6. - more - Pursuant to AB 1890, calculation and collection of most transition costs must be completed by March 31, 2002. Exceptions include transition costs arising from San Onofre Nuclear Generating Stations which will be collected until 2004, costs from transition obligations to utility employees, which may be collected through 2006, and costs associated with purchased power contracts, which will, for the most part, be collected for the duration of the contract or until the contract is restructured. The Commission has also called for workshops prior to the filing of utility applications for rate reduction bond authorization. Rate Reduction Bonds were provided for in AB 1890 and are to be issued through the California Infrastructure and Economic Development Bank. The Commission has also called for proposals to establish a generic and possibly expedited process to consider Qualified Facilities contract restructuring in order to minimize transition costs. Those proposals are due by February 10, 1997. Return On Equity AB 1890 doesn't change the Commission's conclusion that 90 percent of embedded cost of debt as a reasonable rate of return on equity is appropriate for certain transition cost assets and will provide the right incentive for utilities to minimize transition costs to the benefit of ratepayers. Applicability of CEQA The Commission resolved the issue of applicability of the California Environmental Quality Act (CEQA) by concluding, in a separate decision issued today, that a policy-level Environmental Impact Report is no longer required. _____________________________________________________ Schedules for various implementation areas: