CONTACT: Armando Rendón September 3, 1997 CPUC-096
415-703-2423 (A97-05-006)

CPUC Approves Electric Rate Reduction Bonds

The California Public Utilities Commission (CPUC) today approved the rate reduction bond applications of Pacific Gas & Electric Company (PG&E), Southern California Edison Company (Edison), and San Diego Gas & Electric Company (SDG&E). The Commission order marks another important step toward completing the restructuring of the state's electricity industry.

At present, residential and small commercial customer rates are frozen at June 10, 1996, levels. Issuance of the bonds will allow for a 10 percent cut in total electric bills starting January 1, 1998, and continuing until either March 31, 2002, or ending earlier if the transition charges are paid off.

The bonds would be repaid by an additional charge on residential and small business customers' bills of less than 2 cents per kilowatt-hour beginning no later than April 1, 2002, until the bonds are retired in early 2008. By law, rates are expected to decrease by at least 20 percent after 2002, even taking into account the cost of repaying the bonds.

The targeted rate cut is meant to speed up benefits to residential and small business customers who may not otherwise reap for some time the level of benefits from a restructured market as large electricity users might. In the long run, the lower-cost financing provided by the rate reduction bonds could result in estimated net savings to ratepayers of up to $970 million over approximately a 10-year period.

The Commission authorized PG&E to issue $3.5 billion in rate reduction bonds, Edison, $3 billion, and SDG&E $0.8 billion. As required by law, the utilities' financing applications were approved less than 120 days after they were filed.

In the event that market conditions or other factors prevent the timely -more-

issuance of the bonds, the utilities are required to return to the Commission for

approval of an alternate means of achieving the 10 percent reduction by the January 1, 1998, target date.

The additional charge on customers' bills, called a "fixed transition amount", will pay the cost of the bonds, including principal, interest, insurance, and administration (collection and payment).

The companies will set up a wholly-owned subsidiary, or special purpose entity (SPE), whose sole function will be to own "transition property." The transition property, a new type of asset created by the CPUC, is, in effect, the fixed transition amount. The SPE will be "bankruptcy-remote," that is, its assets cannot be reached to satisfy the claims of the utility's creditors, as in a bankruptcy suit.

Each company is to put an amount of funding into its respective SPE equal to about a ˝ percent of the total bonds to be issued and transfer the transition property to the SPE in exchange for the proceeds from sale of the bonds. The SPE, in turn, would issue its own securities either in the form of bonds as determined by the California Infrastructure and Economic Development Bank or other debt securities similar to the bonds.

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