ANSWERS TO QUESTIONS REGARDING THE 10% RATE REDUCTION

Can you explain the recent 10% electric rate decrease funded by bonds?

A. The legislature and the Commission wanted to ensure that ratepayers, and particularly small ratepayers, benefit from electric restructuring from the start. This was accomplished first by mandating a freeze on electric rates at 1996 levels for all customers, beginning in 1997. The second step was a 10 percent rate reduction for residential and small commercial customers, beginning January 1, 1998. There also was a desire to prevent harm to the utilities from reducing their revenues. Consequently, it was decided that the utilities would get their money up front by selling "Rate Reduction Bonds". The bonds have a significantly lower interest rate compared to what is normally paid to the utilities. Due to the interest savings and tax benefits, the Rate Reduction Bonds are expected to reduce ratepayer costs by over $1 billion.

Q. What funds are used to pay off the bonds?

A. A portion of your reduced electric bill is going to pay off the bonds. That is the amount labeled "Trust Transfer Amount" on your bill. That amount is specifically earmarked to pay off the principal and interest on the bonds and can only be used to pay the costs of the bonds. The Trust Transfer Amount decreases over time as the bonds are gradually paid off, and will end within 10 years (around 2008).

Q. The Trust Transfer Amount on my bill is larger than the amount of the 10% rate reduction. Am I actually paying more than I used to instead of getting a 10% reduction?

A. No. The total you are paying now, including the Trust Transfer Amount, is 10% less than what you would have paid the utility before. As an example, if your old bill was $100, your new bill would be $90. With the old bill, all $100 would go to the utility. Under your new bill, only about $75 would go to the utility, and $15 would go to pay the Trust Transfer Amount. You save $10.

Q. Don't consumers end up paying more in the long-run considering the 10 year payments on the bonds? It seems to me that this adds to consumer costs rather than reducing them.

A. The legislature required that the Commission ensure that there would be net benefits to the consumer before authorizing the Rate Reduction Bonds. After conducting a public review, the Commission determined that, over the long run, consumers will end up paying less than they would have without the bonds and the 10% rate reduction. Over the 10 year life of the bonds, ratepayers will save over $1 billion.

However, the ratepayer savings are not evenly spread out over time. The 10% rate reduction ends in the year 2002, while the payments for the trust transfer amount will continue through 2007. Some of the savings ratepayers get from the rate reduction over the next four years will be offset by trust transfer payments made between 2002 and 2007. Overall, ratepayers will save over $1 billion.