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PROPOSAL:

Consideration of Board Policy Position on Proposition 9 - Public Utility Assessment Bonds

SYNOPSIS:

Proposition 9 will be voted upon on the November 3 ballot. This agenda item is to provide the Board the opportunity to take a formal position on this proposition.

COMMITTEE:

Not Applicable.

RECOMMENDED ACTION:

Staff does not have a recommended position.

Barry R. Wallerstein, D.Env.
Acting Executive Officer

Background

In 1996, the Legislature passed and the Governor signed AB 1890, which provided for a fundamental restructuring of the electric services industry in California with the intent of fostering a more competitive electricity market. The purpose of this legislation was to facilitate a transition from regulated monopolies being the exclusive provider of electric utility services to a market-driven environment where electric customers would be offered a choice in electric services and service providers. Among other things, AB 1890:

• Provided a four-year transition period during which investor-owned electric utilities would be allowed to recover "transition" (also referred to as "stranded") costs from a "competition transition charge" (CTC) to existing customers. These costs are defined as electricity generation-related assets and obligations approved by the California Public Utilities Commission that may become uneconomical in a competitive electric generation market;
  

• Required investor-owned utilities to divest their interests in electric power generation facilities;

• Required all electric utilities to maintain a minimum spending level for various "public goods programs" during this transition period,

• Required investor-owned utilities to provide a 10% reduction in utility bills to residential and small business customers by January 1, 1998, and an additional 10% reduction in 2002;

• Authorized the issuance of up to $10 billion in bonds to finance the 10% rate reduction.

The AB 1890 legislation stipulated that (1) the rate-reduction bonds are not an obligation of the state and (2) the state will not limit or alter provisions relating to transition charges and the bond arrangements.

Proposition 9

Proposition 9, a voter initiative that has qualified for the November 3, 1998, statewide ballot, would substantially change the direction for restructuring the electric services industry in California established with the passage of AB 1890. Among other things, the initiative would:

1. Declare that "The cost and dependability of California's electric utility service are threatened by a new law [AB 1890 of 1996] that was intended to reduce regulation of electric utility companies in this state ... [and therefore] it is necessary to protect residential and small business customers from unfair and unjustified taxes and surcharges that will force them to subsidize electric utility companies."

2. Require, as of 1/1/99, investor-owned utilities (IOUs) to provide their residential and small business customers with a reduction in electric utility rates of at least 20%, when compared to rates in effect on June 10, 1996;
   

3. Prohibit affected IOUs from recovering the cost of the 20% rate reduction from a utility tax, bond payment, surcharge, or any other assessment;

4. Prohibit IOUs from recovering stranded investments in nuclear power projects through utility rates, taxes or other assessments; and

5. Prohibit the recovery of $6 billion in electric utility rate-reduction bonds from customers of IOUs.

Support

Proposition 9 is sponsored by Harvey Rosenfield on behalf of the Coalition Against Utility Taxes (CUT), Nettie Hoge for The Utility Reform Network (TURN) and Elisabeth Gunther, representing the Public Media Center in San Francisco. The initiative is supported by other consumer organizations and environmental organizations.

Proponents argue that California's electric restructuring legislation (AB 1890) is unfair to residential and small business customers and favors existing electric utility monopolies over new market entrants. The proponents object to provisions of
AB 1890, which enable IOUs to recover certain costs of nuclear power plants and other stranded assets through utility rates. The proponents additionally foresee potential marketing abuses that will harm residential and small business customers as a result of the implementation of AB 1890. Proponents argue that the rate-reduction bonds are an unwarranted windfall for the investor-owned utilities and a hindrance to competition by giving investor-owned utilities an unfair advantage over would-be competitors. Finally, proponents argue that transition costs, if any, should be the burden of utility stockholders, not the customers.

Opposition

The initiative is opposed by California's investor-owned electric utilities, and a lengthy list of business, environmental, consumer, law enforcement, education, and local government organizations.

Opponents argue that Prop. 9 would make California taxpayers (not just IOU customers) liable for repayment of the $6 billion in rate reduction bonds already issued and would paralyze California's progress in moving toward a competitive electric utility marketplace. Opponents argue that a shift in the burden of paying off the rate reduction bonds will "cloud" California's ability to market state and municipal bonds in the future and may also result in significant state budget cuts. Opponents argue that Prop. 9 could result in a shift of the burden of repayment of the $6 billion rate-reduction bonds from utility customers to the state general fund, at the expense of state support for education and other essential services.

Fiscal Impacts on the District

Staff has not identified any direct fiscal impacts on the AQMD as a result of passage of Proposition 9.

Proposal

Southern California Edison and the "No on Prop. 9" coalition is requesting that the Board take a position in opposition to Proposition 9 on the California November ballot. Staff believes there is insufficient information to determine air quality impacts that could result from the passage of Proposition 9.

Attachments

Letter from Michael Hertel of Southern California Edison dated October 6, 1998

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