Bill Text: CA AB2937 | 2021-2022 | Regular Session | Amended
Bill Title: Electrical corporations: financing orders: wildfire mitigation costs and expenses.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2022-05-19 - In committee: Held under submission. [AB2937 Detail]
Download: California-2021-AB2937-Amended.html
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Amended
IN
Assembly
April 25, 2022 |
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Amended
IN
Assembly
April 07, 2022 |
CALIFORNIA LEGISLATURE—
2021–2022 REGULAR SESSION
Assembly Bill
No. 2937
| Introduced by Assembly Member Calderon |
February 18, 2022 |
An act to amend Sections 850 and 850.1 of the Public Utilities Code, relating to electrical corporations.
LEGISLATIVE COUNSEL'S DIGEST
AB 2937, as amended, Calderon.
Electrical corporations: financing orders: wildfire mitigation and climate adaptation costs and expenses.
Existing law authorizes the Public Utilities Commission to fix the rates and charges for every public utility, and requires that those rates and charges be just and reasonable. Existing law authorizes an electrical corporation to file an application requesting the commission to issue a financing order to authorize the recovery of costs and expenses related to a catastrophic wildfire that ignited during the 2017 calendar year or on or after July 12, 2019, through the issuance of bonds by the electrical corporation that are secured by a rate component, as provided. Existing law requires the commission, upon application, to issue the financing order if the commission determines that certain conditions are satisfied, including the condition that the issuance of a recovery bond is consistent with the public interest and the recovery of the recovery costs through a fixed recovery charge that
is assessed as a rate component, to the maximum extent possible, reduces the rate on a present value basis that consumers within the electrical corporation’s service territory would pay as compared to the use of traditional utility financing mechanisms, as specified.
This bill would authorize electrical corporations to file an application requesting the commission to issue a financing order to authorize the recovery of costs and expenses arising from or incurred as a result of a catastrophic wildfire that ignited during the 2018 calendar year, and of costs and expenses related to electrical corporations’ wildfire mitigation plans, including operational and maintenance expenses associated with wildfire mitigation, and
of climate adaptation costs and expenditures, as defined. The bill would, in regards to the determination that the issuance of the financing order is consistent with the public interest, would require the commission to presume that the financing order provides short-term rate stability in furtherance of the public interest if the commission has authorized an amortization period under traditional utility financing mechanisms in excess of 12 months for the just and reasonable costs. In regards to the determination related to the recovery of the recovery costs described above, the bill would require the commission, in the alternative, to determine whether the recovery of the recovery costs provides short-term rate stability.
Digest Key
Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NOBill Text
The people of the State of California do enact as follows:
SECTION 1.
Section 850 of the Public Utilities Code is amended to read:850.
(a) This article applies in any of the following circumstances:(1) If an electrical corporation applies to the commission for recovery of costs and expenses related to a catastrophic wildfire and the commission finds some or all of the costs and expenses to be reasonable pursuant to Section 451.1, or for the amount of costs and expenses determined pursuant to subdivision (c) of Section 451.2, then the electrical corporation may file an application requesting the commission to issue a financing order to authorize these costs and expenses to be recovered through fixed recovery charges pursuant to this article.
(2) If an
electrical corporation submits an application for recovery of costs and expenses related to catastrophic wildfires or wildfire mitigation efforts, including fire risk mitigation capital expenditures identified in subdivision (e) of Section 8386.3 or costs and expenses related to the electrical corporation’s wildfire mitigation plan, including operational and maintenance expenses associated with wildfire mitigation, in a proceeding to recover costs and expenses in rates and the commission finds that some or all of the costs and expenses identified in the electrical corporation’s application are just and reasonable pursuant to Section 451, the electrical corporation may file an application requesting the commission to issue a financing order to authorize the recovery of those just and reasonable costs and expenses by means of a financing order, with those costs and expenses being recovered through a fixed
charge pursuant to this article. This paragraph does not apply for costs and expenses incurred by the electrical corporation after December 31, 2035.
(3) (A) An electrical corporation may file an application requesting the commission to issue a financing order to authorize the recovery of verified incremental undercollection amounts for calendar year 2020 through fixed recovery charges pursuant to this article, if an electrical corporation’s annual true-up advice letter is accepted and either or both of the following incremental undercollection amounts are verified for calendar year 2020:
(i) An incremental undercollection amount equal to the difference between the forecasted amount of billed revenues for that year, based on the authorized sales forecast, and the
revenues actually billed by an electrical corporation with respect to all revenue balancing accounts, if the incremental amount as a percent of the forecasted amount of billed revenues for that year is at least 5 percent.
(ii) An incremental undercollection amount equal to the residential and small business customer bad debt expense recorded for that year that exceeds the bad debt expense for that year that was adopted by the commission in the general rate case, if the incremental undercollection amount is otherwise eligible for recovery in rates.
(B) The incremental undercollection amounts subject to a commission-approved financing order shall be prohibited from being recovered through any other cost recovery application, mechanism, or request by the electrical
corporation.
(C) The commission shall ensure any costs included in incremental undercollections described in this paragraph and subject to a financing order are just and reasonable consistent with the requirements of subdivision (a) of Section 850.1.
(D) In resolving a request for the issuance of a financing order, the commission may assign cost recovery to each customer class based on their contribution to the incremental undercollection described in this paragraph.
(4)If an electrical corporation submits an application for recovery of climate adaptation
costs and expenses, including operations and maintenance expenses associated with addressing climate adaptation, in a proceeding to recover costs and expenses in rates and the commission finds that some or all of the costs and expenses identified in the electrical corporation’s application are just and reasonable pursuant to Section 451, the electrical corporation may file an application requesting the commission to issue a financing order to authorize the recovery of those just and reasonable costs and expenses by means of a financing order, with those costs and expenses being recovered through a fixed charge pursuant to this article.
(5)
(4) If an electrical corporation applies to the commission for recovery of costs and expenses arising from or incurred as a result of a catastrophic wildfire with an ignition date during the 2018 calendar year and the commission finds some or all of the costs and expenses to be just and reasonable pursuant to Section 451, then the electrical corporation may file an application requesting the commission to issue a financing order to authorize these costs and expenses to be recovered through fixed recovery charges pursuant to this article.
(b) For purposes of this article, the following definitions
apply:
(1) “Ancillary agreement” means a bond insurance policy, letter of credit, reserve account, surety bond, swap arrangement, hedging arrangement, liquidity or credit support arrangement, or other similar agreement or arrangement entered into in connection with the issuance of recovery bonds that is designed to promote the credit quality and marketability of the bonds or to mitigate the risk of an increase in interest rates.
(2) “Catastrophic wildfire amounts” means the portion of costs and expenses the commission finds to be just and reasonable pursuant to Section 451.1 or the amount determined pursuant to subdivision (c) of Section 451.2.
(3)“Climate adaptation costs and expenses” means costs and expenses incurred by an electrical corporation to adapt to climate change and to mitigate the impacts of future climate change, including, but
not limited to,
costs and expenses that benefit greenhouse gas emission reduction efforts, utility system preparedness and adaptation efforts, and climate resiliency efforts.
(4)
(3) “Consumer” means any individual, governmental body, trust, business entity, or nonprofit organization that consumes electricity that has been transmitted or distributed by means of electric transmission or distribution facilities, whether those electric transmission or distribution facilities are owned by the consumer, the electrical corporation, or any other party.
(5)
(4) “Financing costs” means the costs to issue, service, repay, or refinance recovery bonds, whether incurred or paid upon issuance of the recovery bonds or over the life of the recovery bonds, if they are approved for recovery by the commission in a financing order. “Financing costs” may include any of the following:
(A) Principal, interest, and redemption premiums that are payable on recovery bonds.
(B) A payment required under an ancillary agreement.
(C) An amount required to fund or replenish reserve accounts or other accounts established under an indenture, ancillary
agreement, or other financing document relating to the recovery bonds.
(D) Taxes, franchise fees, or license fees imposed on fixed recovery charges.
(E) Costs related to issuing and servicing recovery bonds or the application for a financing order, including, without limitation, servicing fees and expenses, trustee fees and expenses, legal fees and expenses, accounting fees, administrative fees, underwriting and placement fees, financial advisory fees, original issue discount, capitalized interest, rating agency fees, and any other related costs that are approved for recovery in the financing order.
(F) Other costs as specifically authorized by a financing order.
(6)
(5) “Financing entity” means the electrical corporation or any subsidiary or affiliate of the electrical corporation that is authorized by the commission to issue recovery bonds or acquire recovery property, or both.
(7)
(6) “Financing order” 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
recovery charges and to any associated fixed recovery tax amounts included in that financing order to ensure recovery of all recovery costs and the costs associated with the proposed recovery, financing, or refinancing thereof, including the costs of servicing and retiring the recovery bonds contemplated by the financing order.
(8)
(7) “Fixed recovery charges” means 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 both
of the following:
(A) Recovery costs specified in the financing order.
(B) The costs of recovering, financing, or refinancing those recovery costs through a plan approved by the commission in the financing order, including the costs of servicing and retiring recovery bonds.
(9)
(8) “Fixed recovery tax amounts” means those nonbypassable rates and other charges, including, but not limited to, distribution, connection, disconnection, and termination rates and charges, that are
needed to recover federal and State of California income and franchise taxes associated with fixed recovery charges authorized by the commission in a financing order, but are not approved as financing costs financed from proceeds of recovery bonds.
(10)
(9) “Recovery 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 recover, finance, or refinance recovery costs, and that are
directly or indirectly secured by, or payable from, recovery property.
(11)
(10) “Recovery costs” means any of the following:
(A) (i)The catastrophic wildfire amounts or costs pursuant to paragraph (2) of subdivision (a) authorized by the commission in a financing order for recovery.
(ii)Climate adaptation
costs and expenses pursuant to paragraph (4) of subdivision (a) authorized by the commission in a financing order for recovery.
(B) The incremental undercollection amounts that the commission authorizes for recovery in a financing order pursuant to paragraph (3) of subdivision (a).
(C) Federal and State of California income and franchise taxes
associated with recovery of the amounts pursuant to subparagraph (A) or (B).
(D) Financing costs.
(E) Professional fees, consultant fees, redemption premiums, tender premiums, and other costs incurred by the electrical corporation in using proceeds of recovery bonds to acquire outstanding securities of the electrical corporation, as authorized by the commission in a financing order.
(12)
(11) (A) “Recovery property” means the property
right created pursuant to this article, including, without limitation, the right, title, and interest of the electrical corporation or its transferee:
(i) In and to the fixed recovery charges established pursuant to a financing order, including all rights to obtain adjustments to the fixed recovery charges in accordance with Section 850.1 and the financing order.
(ii) 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 provisions of this article and the proceeds thereof, and in and to all revenues, collections, claims, payments, moneys, or proceeds of or arising from the fixed recovery charges that are the subject of a financing order.
(B) “Recovery property” shall not include a right to be paid fixed recovery tax amounts.
(C) “Recovery property” shall constitute a current property right, notwithstanding the fact that the value of the property right will depend on consumers using electricity or, in those instances where consumers are customers of the electrical corporation, the electrical corporation performing certain services.
(13)
(12) (A) “Revenue balancing account” means a
balancing account reflecting the balance between the electrical corporation’s authorized revenue requirements relating to the volumetric sale of electricity and billed revenues associated with those sales. A revenue balancing account includes accounts reflecting the balance between the electrical corporation’s authorized distribution base revenue requirements and recorded billed revenues from authorized distribution rates, and accounts reflecting the difference between the amount of the discount provided to consumers enrolled in the California Alternative Rates for Energy (“CARE”) program and the CARE surcharge charged to non-CARE consumers.
(B) “Revenue balancing account” shall not include amounts reflecting the balance between costs and expenses relating to fuel and purchased electricity by the electrical corporation.
(14)
(13) “Service territory” means the geographical area that the
electrical corporation provides with electric distribution service.
(15)
(14) “True-up adjustment” means a formulaic adjustment to the fixed recovery charges as they appear on customer bills that is necessary to correct for any overcollection or undercollection of the fixed recovery charges authorized by a financing order and to otherwise ensure the timely and complete payment and recovery of recovery costs over the authorized repayment term.
SEC. 2.
Section 850.1 of the Public Utilities Code is amended to read:850.1.
(a) If an electrical corporation files for recovery of recovery costs and the commission finds some or all of those costs and expenses to be just and reasonable pursuant to Section 451 or 451.1, as applicable, or the commission allocates to the ratepayers some or all of those costs and expenses pursuant to subdivision (c) of Section 451.2, the commission may issue a financing order to allow recovery through fixed recovery charges, which would therefore constitute recovery property under this article, and order that any portion of the electrical corporation’s federal and State of California income and franchise taxes associated with those fixed recovery charges and not financed from proceeds of recovery bonds may be recovered through fixed recovery tax amounts.(1) (A) Following application by an electrical corporation, the commission shall issue a financing order if the commission determines that all of the following conditions are satisfied:
(i) The recovery cost to be reimbursed from the recovery bonds have been found to be just and reasonable pursuant to Section 451 or 451.1, as applicable, or are allocated to the ratepayers pursuant to subdivision (c) of Section 451.2.
(ii) The issuance of the recovery bonds, including all material terms and conditions of the recovery bonds, including, without limitation, interest rates, rating, amortization redemption, and maturity, and the imposition and collection of fixed recovery charges as set
forth in an application satisfy all of the following
conditions, as applicable:
(I) They are just and reasonable.
(II) They are consistent with the public interest. For purposes of this article, the commission shall presume that the financing order provides short-term rate stability in furtherance of the public interest
if the commission has authorized an amortization period in excess of 12 months for the just and reasonable costs.
(III) The recovery of recovery costs through the designation of the fixed recovery charges and any associated fixed recovery tax
amounts, and the issuance of recovery bonds in connection with the fixed recovery charges, would either reduce, to the maximum extent possible, the rates on a present value basis that consumers within the electrical corporation’s service territory would pay as compared to the use of traditional utility financing mechanisms, which shall be calculated using the electrical corporation’s corporate debt and equity in the ratio approved by the commission at the time of the financing order, or provide short-term rate stability. order.
(IV) For purposes of this article, the commission shall presume that the financing order provides short-term rate stability in furtherance of the public interest if the commission has authorized an amortization period under traditional utility financing mechanisms in excess of 12 months for the just and reasonable costs.
(B) The electrical corporation may request the determination specified in subparagraph (A) by the commission in a separate
proceeding, in an existing proceeding, or both. If the commission makes the determination specified in subparagraph (A), the commission shall establish, as part of the financing order, a procedure for the electrical corporation to submit applications from time to time to request the issuance of additional financing orders designating fixed recovery charges and any associated fixed recovery tax amounts as recoverable. The electrical corporation may submit an application with respect to recovery costs that an electrical corporation (i) has paid, (ii) has an existing legal obligation to pay, or (iii) would be obligated to pay pursuant to an executed settlement agreement. The commission shall, within 180 days of the filing of that application, issue a financing order, which may take the form of a resolution, if the commission determines that the amounts identified in the application are
recovery costs.
(2) Fixed recovery charges and any associated fixed recovery tax amounts shall be imposed only on existing and future consumers in the service territory. Consumers within the service territory shall continue to pay fixed recovery charges and any associated fixed recovery tax amounts until the recovery bonds and associated financing costs are paid in full by the financing entity.
(3) An electrical corporation may exercise the same rights and remedies under its tariff and applicable law and regulation based upon a consumer’s nonpayment of fixed recovery charges and any associated fixed recovery tax as it could for a consumer’s failure to pay any other charge payable to that electrical corporation.
(b) The commission may establish in a financing order an effective mechanism that ensures recovery of recovery costs through nonbypassable fixed recovery charges and any associated fixed recovery tax amounts from existing and future consumers in the service territory, and those consumers shall be required to pay those charges until the recovery bonds and all associated financing costs are paid in full by the financing entity, at which time those charges shall be terminated. Fixed recovery charges shall be irrevocable, notwithstanding the true-up adjustment pursuant to subdivision (g).
(c) Recovery bonds authorized by the commission’s financing orders may be issued in one or more series on or before December 31, 2035.
(d) The commission shall issue financing orders
in accordance with this article to facilitate the recovery, financing, or refinancing of recovery costs. A financing order may be adopted only upon the application of the 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 consumer shall be allocated between fixed recovery charges, any associated fixed recovery tax amounts, and other charges.
(e) Notwithstanding Section 455.5 or 1708, or any other law, and except as otherwise provided in subdivision (g), with respect to recovery property that has been made the basis for the issuance of recovery bonds and with respect to any associated fixed recovery tax
amounts, the financing order, the fixed recovery charges, and any associated fixed recovery tax amounts shall be irrevocable. The commission shall not, either by rescinding, altering, or amending the financing order or otherwise, revalue or revise for ratemaking purposes the recovery costs or the costs of recovering, financing, or refinancing the recovery costs, in any way reduce or impair the value of recovery property or of the right to receive any associated fixed recovery tax amounts either directly or indirectly by taking fixed recovery charges or any associated fixed recovery tax amounts into account when setting other rates for the electrical corporation or when setting charges for the Department of Water Resources. The amount of revenues shall not be subject to reduction, impairment, postponement, or termination. The State of California does hereby pledge and agree with the electrical corporation,
owners of recovery property, financing entities, and holders of recovery bonds that the state shall neither limit nor alter, except as otherwise provided with respect to the true-up adjustment of the fixed recovery charges pursuant to subdivision (i), the fixed
recovery charges, any associated fixed recovery tax amounts, recovery property, financing orders, or any rights under a financing order until the recovery bonds, together with the interest on the recovery bonds and associated financing costs, are fully paid and discharged, and any associated fixed recovery tax amounts have been satisfied or, in the alternative, have been refinanced through an additional issue of recovery bonds, provided that 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 electrical corporation and of owners and holders of the recovery bonds. The financing entity is authorized to include this pledge and undertaking for the state in these recovery bonds. When setting other rates for the electrical corporation, nothing in this subdivision shall prevent the
commission from taking into account either of the following:
(1) Any collection of fixed recovery charges in excess of amounts actually required to pay recovery costs financed or refinanced by recovery bonds.
(2) Any collection of fixed recovery tax amounts in excess of amounts actually required to pay federal and State of California income and franchise taxes associated with fixed recovery charges, provided that this would not result in a recharacterization of the tax, accounting, and other intended characteristics of the financing, including, but not limited to, either of the following:
(A) Treating the recovery bonds as debt of the electrical corporation or its affiliates for federal income tax purposes.
(B) Treating the transfer of the recovery property by the electrical corporation as a true sale for bankruptcy purposes.
(f) (1) Neither financing orders nor recovery bonds issued under this article shall constitute a debt or liability of the state or of any political subdivision thereof, nor shall they constitute a pledge of the full faith and credit of the state or any of its political subdivisions, 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. All recovery 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 recovery 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.
(g) The commission shall establish procedures for the expeditious processing of an application for a financing order, which shall provide for the approval or disapproval of the application within 120 days of the application. Any fixed recovery charge authorized by a financing order shall appear on consumer bills. The commission shall, in any financing order, provide for a procedure for periodic true-up adjustments to fixed recovery charges, which shall be made at least annually and
may be made more frequently. The electrical corporation shall file an application with the commission to implement any true-up adjustment.
(h) Fixed recovery charges are recovery property when, and to the extent that, a financing order authorizing the fixed recovery charges has become effective in accordance with this article, and the recovery property shall thereafter continuously exist as property for all purposes, and all of the rights and privileges relating to that property accorded by this article shall continuously exist for the period and to the extent provided in the financing order, but in any event until the recovery bonds are paid in full, including all principal, premiums, if any, and interest with respect to the recovery bonds, and all associated financing costs are paid in full. A financing order may provide that the creation of
recovery property shall be simultaneous with the sale of the recovery property to a transferee or assignee as provided in the application of the pledge of the recovery property to secure the recovery bonds.
(i) Recovery costs shall not be imposed upon customers participating in the California Alternative Rates for Energy or Family Electric Rate Assistance programs discount pursuant to Section 739.1.
(j) Any successor to a financing entity shall be bound by the requirements of this article and shall perform and satisfy all obligations of, and have the same rights under a financing order as and to the same extent as, the financing entity, including the obligation to collect and pay energy transition revenues to persons entitled to receive the revenues.
(k) This article and any financing order made pursuant to this article do not amend, reduce, modify, or otherwise affect the right of the Department of Water Resources to recover its revenue requirements and to receive the charges that it is to recover and receive pursuant to Division 27 (commencing with Section 80000) and Division 28 (commencing with Section 80500) of the Water Code, or pursuant to any agreement entered into by the commission and the Department of Water Resources pursuant to the applicable division.
