15. Rehearing and Judicial Review
This Financing Order construes, applies, implements, and interprets the provisions of SB 772. Therefore, applications for rehearing and judicial review of this Financing Order are subject to Sections 1731 and 1769. These laws provide that any application for rehearing of this Financing Order must be filed within 10 days of the final Order. The Commission must issue its decision on any application for rehearing within 20 days of the filing for rehearing. Any court challenge must be made directly to the California Supreme Court and must be filed within 10 days after the Commission denies rehearing.
1. The $3.0 billion of Energy Recovery Bonds proposed by PG&E in A.04-07-032 possess all of the following characteristics required or authorized by D.03-12-035 and/or SB 772:
i. The Bonds will be asset-backed securities, where the principal asset is the right to receive revenues from an irrevocable and nonbypassable DRC designed to provide timely and sufficient funds to pay for Bond principal, interest (including interest-rate swaps, if any), issuance costs, ongoing administrative costs, and any credit enhancements.
ii. The proceeds of the Bonds will be used to (a) refinance the Regulatory Asset established by D.03-12-035, (b) finance federal income taxes and State franchise taxes associated with the unamortized portion of the Regulatory Asset, and (c) finance Bond issuance costs.
iii. The Bonds may be issued in one or two series. If two series are issued, the first series will be issued in an aggregate principal amount equal to the sum of the expected unamortized after-tax portion of the Regulatory Asset, less the net after-tax amount of any energy supplier refunds expected to be received by PG&E prior to the date the first series is issued (and not yet credited against the Regulatory Asset pursuant to D. 03-12-035), plus the estimated cost of issuing the first series of Bonds. The second series of Bonds will be issued in an aggregate principal amount equal to the lesser of (a) the difference between $3.0 billion and the principal amount of the first series of Bonds, or (b) the sum of the expected amount of future federal income taxes and State franchise taxes associated with the DRC for each series of Bonds, minus the pre-tax amount of energy supplier refunds expected to be received by PG&E on or after the date on which the first series of Bonds is issued but before the date the second series of Bonds is issued, plus the estimated cost of issuing the second series of Bonds.
iv. PG&E will not issue the Bonds. The Bonds will be issued by a bankruptcy remote SPE that is (a) formed and wholly owned by PG&E, and (b) separate from PG&E. The SPE will own the right to receive DRC revenues.
v. Not including the cost of credit enhancements, a return on SPE equity, and certain other costs, issuing the Bonds will result in estimated savings for ratepayers of (a) between $447 million and $624 million on a NPV basis over the life of the Bonds assuming favorable tax treatment, or (b) between $25 million and $201 million on a NPV basis assuming unfavorable tax treatment.
vi. The Bonds will not adversely affect the credit ratings of PG&E or its other debt.
vii. The Bonds will be amortized on a level, mortgage style basis. The scheduled final maturity of the Bonds will be no earlier than October 1, 2012, and no later than April 1, 2013. The legal final maturity of the Bonds will be no later than April 1, 2015.
viii. The Bonds will be issued pursuant to enacted legislation (i.e., SB 772) that is satisfactory to PG&E, TURN, and the Commission.
x. The Bond proceeds will be used to rebalance PG&E's capital structure in a way that maintains the capital structure required by the MSA adopted by D.03-12-035.
2. It is likely that the actual savings that will ultimately be realized by ratepayers from the issuance of the Bonds will be in the upper end of the range of $27 million - $624 million of ratepayer savings estimated by this Financing Order.
3. Decision 03-12-035 requires that PG&E obtain, or determine that it does not a need, a private letter ruling from the IRS in which the IRS finds that neither the refinancing nor the issuance of the Bonds is a presently taxable event.
4. On June 8, 2004, PG&E submitted a request to the IRS for a private letter ruling. PG&E expects the IRS to respond in December 2004, but the IRS may not respond until after December 2004 or not at all.
5. The cost of the Energy Recovery Bonds authorized by this Financing Order might be reduced if PG&E is able to attract a broad range of investors by dividing each series of Bonds into several classes with different maturity dates.
6. PG&E proposes that the pre-tax amount of energy supplier refunds received after the second series of Bonds is issued be refunded to ratepayers via the ERRBA.
7. To enhance the credit quality of the Energy Recovery Bonds, PG&E requests that, in the event of a default by PG&E in transferring the DRC revenues to the SPE, the Commission, upon application by the Bond Trustee, order the sequestration and payment to the Bond Trustee for the benefit of the SPE of revenues arising with respect to Recovery Property.
8. PG&E requests authority for the SPE to provide credit enhancement for the Energy Recovery Bonds in the form of overcollateralization, which PG&E believes will be required by the credit rating agencies and to obtain favorable tax treatment for the Bonds.
9. PG&E proposes to cap total Bond issuance costs at $25 million, plus any costs associated with the Commission's Financing Team.
10. There is no opposition to PG&E's proposals identified in the four previous Findings of Fact.
11. PG&E represents that (i) an equity contribution (i.e., credit enhancement) of at least 0.50 percent of the initial principal amount is required in order to characterize asset-backed securities as debt for tax purposes, and (ii) the required amount of equity for tax purposes could increase before the Energy Recovery Bonds are issued.
12. Because Section 848.1(g) limits the Commission's authority to adjust, after-the-fact, any issuance costs that are unjust or unreasonable, it is important to review issuance costs before they are incurred.
13. PG&E requests authority to use Bond proceeds to (i) fund capital expenditures, and (ii) retire outstanding long-term debt and common equity.
14. There was no opposition to PG&E's proposal to recover the following costs via the DRC: credit enhancements, interest rate swaps, servicing fees, Bond Trustee fees, and other ongoing costs.
15. The True-Up Mechanism adopted by this Financing Order will allow PG&E to make timely adjustments to the DRC to account for variations in actual DRC revenues from those originally forecast.
16. There are numerous costs and benefits associated with the Energy Recovery Bonds that will be flowed through to ratepayers via the ERBBA adopted by this Financing Order. The specific costs and benefits that will be subject to the ERBBA are identified in the body of this Financing Order.
17. There is no opposition to PG&E's proposal to require all consumers to pay the ERBBA charge to the same extent they pay the DRC.
18. The RARAM allows PG&E to track and recover costs associated with the bankruptcy Regulatory Asset.
19. After the Regulatory Asset is refinanced with the proceeds from the first series of Energy Recovery Bonds, the RARAM will no longer be necessary.
20. The Energy Recovery Bonds qualify for an exemption from the Competitive Bidding Rule because (i) allowing the Bonds to be issued on a negotiated basis will minimize interest costs, and (ii) it is necessary for the Bonds to be issued on a negotiated basis because the Bond transaction will be complex and highly structured.
21. In its capacity as servicer, PG&E will be responsible for (i) reading customer meters, (ii) billing and collecting the DRC, and (iii) remitting the DRC revenues to the Bond Trustee.
22. It is reasonable for the Bond Trustee to pay a servicing fee to PG&E that is set at a level sufficient to induce another entity to take over the servicing function from PG&E should this become necessary.
23. The annual servicing fees charged by the sponsoring utilities for utility asset-backed bonds range from 0.050 percent to 0.125 percent of the initial principal amount. The annual servicing fees charged by third-party servicers range from 0.60 percent to 1.25 percent of the initial principal amount.
24. The credit quality and expertise in performing servicing functions will be important considerations when approving the appointment of an alternate servicer to ensure the credit ratings for the Energy Recovery Bonds are maintained.
25. It is possible that ESPs will bill and collect the DRC from some consumers.
26. If a third-party meters and bills for the DRC, PG&E needs access to information on kWh billing and usage by consumers to provide for proper reporting to the SPE and to perform its obligations as servicer.
27. If electric consumers fail to pay their utility bills in full, any shortfall in revenues must be allocated pro rata among the DRC, any FRTAs, and other charges to avoid PG&E favoring its own interests.
28. PG&E anticipates that the Bond Trustee's collection account will have at least three subaccounts: (i) the equity subaccount to hold equity contributed by PG&E; (ii) the overcollateralization subaccount to hold funds collected from the DRC over the life of the Energy Recovery Bonds to provide credit enhancements; and (iii) the reserve subaccount to hold funds in excess of amounts necessary to pay debt service and Bond costs. The actual account structure will not be finalized until the Bond transaction structure is finalized, and will be subject to the approval of the Financing Team established by the Financing Order.
29. This Financing Order adopts procedures which ensure that all Consumers, as defined in Section 848(a), who are responsible for paying the Bond Charges will receive the full benefit of any energy supplier refunds.
30. The Commission is required by Section 848.1(c) to determine the extent to which Bond Charges are recoverable from new municipal load, consistent with the Commission's determination in the limited rehearing granted in D.03-08-076, and to make this determination on the earlier of the date it adopts this Financing Order or December 31, 2004.
31. In a companion decision issued today in R.02-01-011, the Commission resolves the limited rehearing granted by D.03-08-076 and addresses the question of the responsibility of new municipal load for portions of the CRS.
32. In D.04-02-062, the Commission offset a rate increase for the Regulatory Asset with a rate decrease for generation, so that overall rates for CARE, medical baseline, and residential Tier 1 and Tier 2 consumers did not change. The entire rate increase allocable to the residential class was assigned to Tiers 3 and 4.
33. In recent years the Commission has routinely authorized utilities to report on a quarterly basis the information required by GO 24-B in order to reduce the utilities' administrative and compliance costs.
34. PG&E estimates that it may use $154 million of Bond proceeds to fund capital expenditures in 2006. However, PG&E represents that it cannot identify the specific capital expenditures that will be financed with the Bond proceeds.
35. A.04-07-032 does not propose, and this Financing Order does not authorize, any new construction or changes in use of existing assets and facilities.
36. There are no contested factual issues in this proceeding, and there have been no requests for an evidentiary hearing.
1. For purposes of Section 848(i), the bankruptcy Regulatory Asset established by D.03-12-035 has arisen and exists, and there are federal income taxes and State of California franchise taxes associated with the recovery of the unamortized balance of that Regulatory Asset. For the purposes of Section 848(i), the unamortized balance of the bankruptcy Regulatory Asset will continue to exist until the date on which Energy Recovery Bonds are issued to refinance the unamortized balance of that Regulatory Asset, notwithstanding additional proceedings, if any, relating to the Regulatory Asset.
2. For the purposes of Section 848(i), federal income taxes and State of California franchise taxes are associated with the recovery of the unamortized balance of that Regulatory Asset that was established by D.03-12-035, and this association will continue until the date Bonds are issued to finance these federal income taxes and California franchise taxes, not withstanding any additional proceedings relating to the Regulatory Asset.
3. Although the Bonds will be issued by the SPE, and not by PG&E, the SPE will be a wholly separate subsidiary of PG&E that will be established for the purpose of carrying out this Financing Order.
4. The Energy Recovery Bonds proposed by PG&E in A.04-07-032 satisfy all the conditions established by SB 772 and D.03-12-035, except for the condition in D.03-12-035 that PG&E obtain, or determine that it does not need, a private letter ruling from the IRS which states that issuing the Bonds and using the Bond proceeds to refinance the Regulatory Asset is not a presently taxable event.
5. Because issuance of the Energy Recovery Bonds will provide substantial benefits to PG&E's ratepayers, the SPE should be authorized to issue the Bonds if and when the final condition is satisfied.
6. If and when the IRS issues a private letter ruling, PG&E should file a copy of the ruling and provide a copy to the Commission's Financing Team no later than 5 days after the IRS issues its ruling:
7. PG&E should provide written notification to the Commission no later than 10 days before the first series of Bonds is issued regarding whether PG&E has determined if an IRS private letter ruling is needed. If PG&E determines that it does not need a private letter ruling as it continues to advocate for favorable tax treatment, this notification will satisfy the requirement that PG&E obtain, or determine that it does not need, a private letter ruling that states the Bond transaction is not a presently taxable event.
8. If PG&E determines that an IRS private letter ruling is not needed, it should be authorized to increase the amount of overcollateralization of the Bonds and the equity contributed to the SPE in order to strengthen the position that PG&E will take in its income tax returns that the Bond transaction is not a presently taxable event. The maximum amount of overcollateralization and equity contribution should each be no more than 1.5 percent of the initial Bond principal amount.
9. The Energy Recovery Bonds authorized by this Financing Order do not: (i) constitute a debt or liability of the State of California or any political subdivision thereof; (ii) constitute a pledge of the full faith and credit of the State or any political subdivision; or (iii) directly, indirectly, or contingently obligate the State or any political subdivision thereof to levy or to pledge any form of taxation to pay any obligations associated with the Energy Recovery Bonds or to make any appropriations for their payment.
10. All Energy Recovery Bonds should contain a legend 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."
11. The SPE should endeavor to issue the Bonds as soon as practical in order to maximize the Carrying Cost Credit provided to ratepayers.
12. If two series of Bonds are issued, the first series should be issued in December 2004, if possible, or as soon as possible thereafter. The second series should be issued within one year of the first series and no later than December 31, 2006. If the second series is not issued by May 31, 2005, PG&E should be required to file and serve a compliance filing by June 10, 2005, that (i) explains in detail why it was necessary to delay the issuance of the second series of Bonds beyond May 31, 2005, (ii) states when the second series will be issued, and (iii) identifies the amount of Carrying Cost Credit forgone due to the delayed issuance of the second series of Bonds. Comments and reply comments on PG&E's compliance filing should be filed and served on June 17 and June 24, 2005, respectively.
13. If appropriate, each series of Energy Recovery Bonds should be divided into several classes with different maturity dates, with the final number, type, and size of Bond classes selected by the SPE to achieve the lowest average interest cost. The revenue requirement for the different classes for each series should sum to an annual amount that closely approximates what the SPE would pay if it issued only one class of Bonds that is amortized on a level, annual mortgage style basis over the life of the series.
14. The scheduled final maturity of each series of Bonds should be no earlier than October 1, 2012, and no later than April 1, 2013. The legal final maturity of each series of Bonds should be no later than April 1, 2015.
15. The Energy Recovery Bonds should have fixed or floating interest rates as determined at the time of issuance to provide the lowest all-in cost of Bonds. Any floating rate should be converted to a synthetic fixed rate with interest-rate swaps so ratepayers do not have any significant floating-rate risk. The interest costs recovered via the DRC should be based on the synthetic fixed rate so long as the interest-rate swap remains in effect.
16. Floating-rate Bonds should be issued only if the all-in cost of the Bonds, including the cost of creating a synthetic fixed rate, is less than what would be available for comparable maturities in the fixed-rate market.
17. Any interest rate-swaps should be subject to the conditions described in the body of this Financing Order.
18. Any energy supplier refunds received after the second series of Bonds is issued should be refunded to all Consumers, as defined in Section 848(a), responsible for paying the Bond Charges via the ERBBA or successor mechanism.
19. The Commission should have full access to the books and records of the SPE. PG&E should not make any profit from the SPE, except for an authorized return on PG&E's equity investment in the SPE.
20. PG&E should contribute equity to the separate SPE, as necessary, for tax purposes and to satisfy the conditions established by the credit rating agencies.
21. PG&E should sell the Recovery Property identified in an Issuance Advice Letter to the SPE identified in the advice letter. The SPE identified in the Issuance Advice Letter will constitute a Financing Entity for all purposes of SB 772.
22. Once Recovery Property is established pursuant to an Issuance Advice Letter, it should not be adjusted in response to protests to the Advice Letter. Any mathematical errors or other errors or irregularities regarding the amount of established Recovery Property should be corrected through the DRC, ERBBA charge, or other appropriate means.
23. The Energy Recovery Bonds should be secured by the Recovery Property, SPE equity held by the Bond Trustee, and other funds held by the Bond Trustee.
24. The SPE should transfer the Bond proceeds (net of issuance costs) to PG&E to purchase the Recovery Property. The SPE should pay the small remaining balance of the purchase price from its equity funds.
25. The following will occur or exist as a matter of law upon the sale by PG&E of Recovery Property to the SPE: (i) the SPE will have all of the rights originally held by PG&E with respect to the Recovery Property, including the right to exercise any and all rights and remedies to collect any amounts payable by any customer in respect of the Recovery Property notwithstanding any objection or direction to the contrary by PG&E; (ii) any payment by any customer to the SPE will discharge such customer's obligations in respect of the Recovery Property to the extent of such payment, notwithstanding any objection or direction to the contrary by PG&E; and (iii) PG&E will not be entitled to recover the DRC associated with the Recovery Property other than for the benefit of the SPE or of holders of the associated Energy Recovery Bonds in accordance with PG&E's duties as servicer with respect to such Bonds.
26. The SPE, as the owner of the Recovery Property, may pledge the Recovery Property as collateral to one or more indenture trustees to secure payments of principal, interest, administrative expenses, credit enhancements, interest rate swap agreements, and other amounts payable under one or more indentures pursuant to which Energy Recovery Bonds are issued. A separate and distinct statutory lien described in Section 848.3(g) shall exist on the Recovery Property then existing or thereafter arising that is described in an Issuance Advice Letter and shall secure all obligations, then existing or subsequently arising, to the holders of the Bonds described in such Issuance Advice Letter and the trustee for such holders. There shall be no statutory liens of the type described in Section 848.3(g) except as provided in this Conclusion of Law.
27. Any pledge like that described in the preceding Conclusion of Law should be identified and described in the Issuance Advice Letter.
28. To ensure that the SPE is legally separate and bankruptcy remote from PG&E, the SPE should be authorized to (i) include one or more independent members on its board of directors in the case of a corporation or a limited liability company, or an independent trustee in the case of a trust; (ii) have restrictions on its ability to declare bankruptcy or to engage in corporate reorganizations; and (iii) limit its activities to those related to the Energy Recovery Bonds.
29. In the event of a default by PG&E in transferring the DRC revenues to the SPE, the Commission may order the sequestration and payment to the Bond Trustee for the benefit of the SPE of revenues arising from the Recovery Property.
30. In the event of a default by PG&E in transferring the DRC revenues to the SPE, the following parties may petition the Commission to implement the remedy described in the previous Conclusion of Law: (i) the holders of the Energy Recovery Bonds and the trustees or representatives thereof as beneficiaries of any statutory or other lien permitted by the Public Utilities Code; (ii) the SPE or its assignees; and (iii) pledgees or transferees, including transferees under Section 848.4, of the Recovery Property.
31. The SPE should be authorized to provide credit enhancements for the Energy Recovery Bonds, but only if the credit enhancements are (i) required for tax purposes, and/or (ii) deemed necessary by the SPE for the reasons set forth in Conclusion of Law 8, and/or (iii) required by the rating agencies to receive the highest investment grade rating, and the all-in cost of the Bonds with the credit enhancements is less than without the credit enhancements.
32. Any revenue for credit enhancements that is collected as part of the DRC, in excess of total debt service and other Bond costs, should be the property of the SPE. After the Energy Recovery Bonds are repaid, the increase in value of PG&E's equity interest in the SPE should be returned to all Consumers, as defined in Section 848(a), responsible for paying the Bond Charges.
33. Total Bond issuance costs should be capped at $25 million, plus any costs associated with the Commission's Financing Team.
34. The costs of issuing the Energy Recovery Bonds, including, inter alia, underwriters' compensation, rating agency fees, Commission application fees, accounting fees, SEC registration fees, printing and marketing expenses, legal fees, trustee's fees, Commission Financing Team costs, and the administrative costs of forming the SPE, should be treated as Recovery Costs for purposes of Section 848(i).
35. When the SPE issues each series of Energy Recovery Bonds, the SPE should estimate the issuance costs. After all issuance costs are paid by the SPE, any proceeds not used for issuance costs should be used to offset the revenue requirement in the next DRC true-up calculation.
36. PG&E should be authorized to use the proceeds from its sale of the Recovery Property to the SPE to fund capital expenditures and to retire outstanding long-term debt and common equity, subject to the condition that the percentage of common equity in PG&E's capital structure must comply with the MSA adopted by D.03-12-035.
37. The issuance of the Energy Recovery Bonds should be exempted from the Competitive Bidding Rule set forth in Resolution F-616.
38. To ensure that PG&E and the SPE structure the Bond transaction for each series of Bonds in a reasonable manner, the Bond transaction for each series of Bonds should be reviewed and approved by a Financing Team consisting of the Commission's General Counsel, the Director of the Energy Division, other Commission staff, outside bond counsel, and any other outside experts deemed necessary by the Financing Team.
39. The composition and responsibilities of the Commission's Financing Team established by this Financing Order are consistent with the authority set forth in Decisions 02-11-030, 03-04-035, 03-09-020 and 04-01-024.
40. PG&E should be authorized pursuant to SB 772 to bill and collect a DRC that is designed to recover the following: (i) Bond principal and interest; (ii) approved Bond issuance costs not funded with Bond proceeds; (iii) the cost of Bond-related interest rate swaps; (iv) overcollateralization and other credit enhancements; (v) servicing fees; (vi) Bond Trustee fees; (vii) other Bond-related administrative costs; and (viii) replenishment of SPE equity that is used to pay for any of the previous Items.
41. PG&E should establish a separate DRC for each of the two Bond series.
42. The DRC revenues for each series of Bonds should be transferred to the Bond Trustee for the benefit of the SPE. The Bond Trustee should use the DRC revenues only for the purposes identified in Conclusion of Law 40.
43. To implement the DRC for each series of Energy Recovery Bonds, PG&E should file an Issuance Advice Letter no later than four days after each series is priced. The Issuance Advice Letter should be effective upon filing and based on the pro forma example contained in Appendix D of A.04-07-032.
44. The Issuance Advice Letter for each Bond series should use the cash flow model described in Appendix A of A.04-07-032, applied to that series of Energy Recovery Bonds, along with the most recent PG&E sales forecast, to develop the initial DRC and associated FRTAs for that series of Energy Recovery Bonds.
45. The DRC established by each Issuance Advice Letter should be effective automatically 10 days after the Advice Letter is filed or a later date if requested by PG&E, but no more than 60 days after the issuance of the associated Bonds. Once established, the DRC will constitute FRAs subject to Section 848.1(g).
46. No later than 10 days after this Financing Order is mailed, PG&E should file a DRC tariff based on the pro forma example in Appendix C of A.04-05-041. The DRC tariff should be effective simultaneously with the effective date of the DRC specified in the first Issuance Advice Letter.
47. Each Issuance Advice Letter should identify the "Recovery Property," as that term is defined by Section 848.1(j), that is subject to the Advice Letter.
48. Upon the effective date of each Issuance Advice Letter, all of the Recovery Property identified in the Advice Letter will constitute a current property right and will thereafter continuously exist as property for all purposes.
49. The owners of Recovery Property will be entitled to recover DRC revenues in the aggregate amount equal to the principal amount of the associated series of Energy Recovery Bonds, all interest thereon, any credit enhancements, and all related fees and costs in respect of the scheduled payment of the associated series of Energy Recovery Bonds, as well as other amounts payable under any interest rate swap agreement or the indenture pursuant to which the associated series of Energy Recovery Bonds is issued.
50. Sections 848.1(g) and 848.1(i) require the Commission to adjust the DRC at least annually, and more often if necessary, to ensure timely recovery of the amounts identified in the preceding Conclusion of Law.
51. Any default under the documents relating to the Energy Recovery Bonds will entitle the holders of Energy Recovery Bonds, or the trustees or representatives for such holders, to exercise the rights or remedies such holders or such trustees or representatives therefore may have pursuant to any statutory or other lien on the Recovery Property.
52. The True-up Mechanism and associated advice letters described in the body of this Financing Order should be adopted. This mechanism will adjust the DRC annually, and quarterly if necessary, to ensure that the DRC provides sufficient revenues to pay in a timely manner all the amounts identified in Conclusion of Law 40.
53. The adjustments to the DRC in annual and quarterly "Routine True-Up Mechanism Advice Letters" should go into effect automatically the later of (i) 15 days after the advice letter is filed, or (ii) the first day of first calendar quarter after the advice letter is filed. These advice letters should be based on the pro forma example contained in Appendix E of A.04-07-032, modified as described in the body of this Financing Order.
54. The True-Up Mechanism Advice Letters should calculate a revised DRC using (i) the cash flow model in Appendix A of A.04-07-032, modified as described in the body of this Financing Order, and (ii) the adjustments to the cash flow model listed in the body of this Financing Order.
55. PG&E should be allowed to file Non-Routine True-Up Mechanism Advice Letters to revise the cash flow model in Appendix A of A.04-07-032, as modified in the body of this Financing Order, to meet scheduled payments of Bond principal, interest, and related costs. Absent a Commission resolution modifying or rejecting proposed changes to the cash flow model, PG&E or a successor servicer may implement DRC adjustments proposed in a Non-Routine True-Up Mechanism Advice Letter on the first day of the next calendar quarter following the submittal of the Advice Letter.
56. With the modifications identified in Conclusions of Law 55, 81, 83, 90, 91, 92, 93, 94, 94, 95, 100, and 100, PG&E's proposed mechanisms for establishing and adjusting the DRC are reasonable, including the pro forma Issuance Advice Letters, True-Up Mechanism Advice Letters, and tariffs in Appendix C of A.04-07-032.
57. PG&E should establish the ERBBA to flow through to its ratepayers the Bond-related costs and benefits enumerated in the body of this Financing Order.
58. PG&E should file a separate advice letter at the same time as the first Issuance Advice Letter to establish the ERBBA tariff and ERBBA charge. The ERBBA tariff should be based on the pro forma tariff in Appendix C of A.04-07-032.
59. The ERBBA should operate in the manner described in this Financing Order. After the initial ERBBA advice letter filing, the ERBBA charge should be adjusted annually in a proceeding designated by the Commission. If no proceeding has been designated, PG&E should file an annual advice letter in time to adjust the ERBBA charge on January 1st of the following calendar year.
60. Once the first series of Bonds is issued, PG&E should eliminate the RARAM and transfer any balances in the RARAM to the ERBBA for amortization in future ERBBA charges. The RARAM and any associated charge should be eliminated by the same advice letter that establishes the ERBBA.
61. The DRC and ERBBA charge (collectively, the Bond Charges) should be (i) nonbypassable, (ii) set on an equal cents per kWh basis, except to the extent limited by caps imposed on rates and charges for certain customer classes, and (iii) recovered from all existing and future consumers in PG&E's service territory as of December 19, 2003, except for those consumers and types of load that are exempt from the Bond Charges pursuant to Section 848.1(b) and (c).
62. PG&E should be authorized to combine all Bond Charges into a single line item on ratepayers' bills titled "Energy Cost Recovery Amount." The back of ratepayers' bills should provide a definition of the "Energy Cost Recovery Amount" as set forth in the body of this Financing Order.
63. PG&E and the SPE should account for Bond Charges in the manner described in the body of this Financing Order.
64. PG&E should act as the servicer for DRC on behalf of the SPE, and PG&E should collect the ERBBA charge on its own behalf.
65. To the extent consumers of electricity in PG&E's historic service territory are billed by other entities, PG&E should request these other entities to bill for the Bond Charges and to remit the Bond Charge revenues to PG&E on behalf of such consumers.
66. ESPs that bill and collect the DRC from PG&E's ratepayers should satisfy the requirements set forth in PG&E's Electric Rule 22.P., "Credit Requirements."
67. PG&E will be legally obligated to remit DRC revenues, on behalf of the SPE, to the Bond Trustee. PG&E should remit the DRC revenues in accordance with the procedures described in the body of this Financing Order and the following two Conclusions of Law.
68. Amounts collected by PG&E that represent partial payments of a customer's bill should be allocated between the Bond Trustee and PG&E based on the ratio of the amount of the DRC billed to the total billed amount.
69. PG&E, as servicer, is obligated to forward to the Bond Trustee (on behalf of the SPE) only DRC collection amounts which PG&E projects that it has actually collected. The Bond Trustee (acting on behalf of the SPE) will have a legal right to only the amount of actual DRC cash collections.
70. The Bond Trustee should hold all DRC collections received from PG&E in a collection account. The Bond Trustee should use the funds held in the collection account to pay the following on a timely basis: (i) Bond principal and interest; (ii) amounts due under interest-rate swap agreements; (iii) costs for credit enhancements; (iv) servicing fees; (v) Bond Trustee fees; and (vi) other administrative costs.
71. The Bond Trustee should invest all funds in investment grade short-term securities. Investment earnings should be retained in the collection account to pay debt service or other Bond costs.
72. If funds, other than investment earnings from capital held in the equity subaccount, remain in the collection account after distributions are made, they should be credited to the reserve subaccount. All reserve subaccount funds should be available to pay debt service or other Bond costs. At the time of the next scheduled DRC true-up filing, the reserve subaccount balance should be used to offset the revenue requirement for the DRC.
73. Investment earnings in the equity subaccount should be paid by the Bond Trustee to the SPE, except in the unlikely event that these funds are needed to pay Energy Recovery Bond principal, interest, and other Bond-related costs.
74. PG&E should be authorized to charge an annual servicing fee within the range of 0.050 percent to 0.125 percent of the initial Bond principal amount as required by the rating agencies for the highest possible Bond credit ratings. PG&E should credit electric ratepayers the amount of this servicing fee in excess of any recorded incremental servicing costs.
75. PG&E should not resign as servicer without prior Commission approval.
76. If PG&E fails to perform its servicing functions satisfactorily, as set forth in the Servicing Agreement, or is required to discontinue its billing and collecting functions, an alternate servicer nominated by the Bond Trustee and approved by the Commission should replace PG&E. The new servicer should bill and collect only the DRC. The fees paid to the new servicer should be approved by the Commission and should be within the range of 0.60 percent to 1.25 percent of the initial principal amount for the Energy Recovery Bonds.
77. Before approving a third-party servicer, the Commission should determine that the appointment will not cause the then-current rating of any then outstanding Energy Recovery Bonds to be withdrawn or downgraded.
78. SB 772 does not provide an exemption from the DRC in the event that PG&E uses some of the Bond proceeds to pay for capital expenditures.
79. For the reason set forth in the previous Conclusion of Law, it is not illegal for MDL consumers to pay the full amount of their DRC liability in the event PG&E uses some of the Bond proceeds to fund capital expenditures.
80. PG&E should serve a copy of the advice letters authorized by this Financing Order on any party that requests service.
81. The DRC established pursuant to the Issuance Advice Letters and True-up Mechanism Advice Letters should be subject to (i) post-filing review by the Commission's Energy Division, and (ii) post-filing protests in accordance GO 96-A, Section III.H. If the Energy Division finds mathematical errors in these advice letters, the Energy Division should prepare for the Commission's consideration a resolution that corrects the DRC. There should be no time limit on the Energy Division's ability to find and correct errors.
82. Pursuant to Section 848.1(c), Bond Charges should apply to new municipal departing load to the same extent it is determined in R.02-01-011 that the CRS applies to new municipal load.
83. PG&E should implement a memorandum account to track the Bond Charges applicable to Section 848.1(c) new municipal load, consistent with the Commission's decision today in R.02-01-011. The tracked amounts should be subject to true-up and recovery. The disposition of the tracked amounts should be decided in R.02-01-011 or a successor proceeding. PG&E should not remit the tracked amounts to the SPE until the amounts are billed, collected, and no longer subject to true-up or adjustment.
84. PG&E should file an advice letter to conform the Bond Charges to the CRS with respect to new municipal load. This advice letter should be filed in accordance with the procedures and timetable for implementation of the MDL CRS specified in R.02-01-011.
85. Section 848.1(c) requires the Commission to determine the extent to which new municipal load is exempt from Bond Charges "on the earlier of the date it adopts a financing order or December 31, 2004." This requirement is satisfied with today's issuance of a companion decision in R.02-01-011 that resolves the limited rehearing granted by D.03-08-076 and addresses the question of the responsibility that the new municipal load identified in Section 848.1(c) has for portions of the CRS.
86. The principles adopted in the companion decision issued today in R.02-01-011 should apply to the responsibilities of new municipal load under Section 848.1(c) for the Bond Charges adopted in this Financing Order.
87. SB 1201 does not explicitly exempt BART from the Bond Charges.
88. BART's late-filed comments on the draft Financing Order (and PG&E's associated reply comments), unsupported by any record evidence, are not a sufficient basis for deciding whether, and to what extent, SB 1201 exempts BART from the Bond Charges. BART should be allowed to raise this issue in Phase II of PG&E's GRC proceeding in A.04-06-024.
89. Decision 04-02-062 requires the Regulatory Asset charge and its successor, which is the DRC and the ERBBA charge taken together, to be allocated to consumers on an equal cents per kWh basis. The only exception is certain "customer generation departing load," which is not required by D.04-02-062 to bear any cost responsibility for the Regulatory Asset charge and its successor.
90. Based on the guidance provided by D.04-02-062, Bond Charges should apply to all DL except certain customer generation DL and any other exemptions provided for in SB 772. Except to the extent limited by caps presently imposed on rates and charges for certain consumer classes, the Bond Charges should be imposed on all non-exempt consumers on an equal cents per kWh basis.
91. The method ultimately adopted by the Commission to determine the amount of DL that is subject to the Regulatory Asset charge should also be used to determine the amount of DL that is subject to Bond Charges.
92. The procedures proposed in PG&E's pending advice letters for determining the amount of DL that is subject to the Regulatory Asset charge should not be used to determine the amount of DL that is subject to Bond Charges unless and until these procedures are adopted by Commission.
93. Once the Commission adopts procedures for determining the amount of DL that is subject to the Regulatory Asset charge, whether in response to PG&E's pending advice letters or in another proceeding, PG&E should file an advice letter to apply the adopted procedures to Bond Charges.
94. Consistent with SB 772 and the decision today in R.02-01-011, PG&E should establish a memorandum account to track the amount of DL subject to Bond Charges. The tracked amounts should be subject to true-up and recovery. PG&E should recover the tracked amounts from DL consumers after the Commission has adopted a method for determining the amount of DL that is subject to the Bond Charges.
95. If for any reason the DRC actually collected from DL consumers is subject to refund, those amounts should be held by PG&E and remitted to the SPE only after there is a final determination that such amounts are not subject to adjustment or refund.
96. The recovery of Bond Charges from non-exempted DL consumers should be subject to the CRS cap of $0.027/kWh on an interim basis. The procedure and priority for recovering Bond Charges under the CRS cap should mirror the recovery of the Regulatory Asset from non-exempted DL consumers under the cap as set forth in D.03-07-028 and D.04-02-062. Parties should be allowed to raise this matter again in Phase II of PG&E's GRC in A.04-06-024 or other such proceeding as may be subsequently determined.
97. The rate design for the Regulatory Asset adopted by D.04-02-062 provides a reasonable basis for deciding whether, and to what extent, CARE, medical baseline, and residential Tier 1 and Tier 2 consumers should receive the same Bond-related rate reduction as other consumers.
98. Consistent with D.04-02-062, the Bond-related rate decrease for CARE, medical baseline, and residential Tier 1 and Tier 2 consumers should be offset with a rate increase for generation, so that overall rates for these consumers remain the same. The additional revenues received from the rate increase for the generation rate component for residential Tiers 1 and 2 should be applied to reduce generation rates for residential Tiers 3 and 4.
99. ORA should be allowed to raise in Phase II of PG&E's current GRC the issue addressed in the two previous Conclusions of Law. There, the Commission may reach a different outcome than the one reached in this Financing Order.
100. Except for mathematical errors in calculating the DRC, adopted adjustments to Bond-related costs and revenues should (i) not affect the DRC, and (ii) be recorded in the ERBBA and flowed through to electric ratepayers in the same manner as all other costs and revenues recorded in the ERBBA.
101. Although the Bonds will be issued by the SPE, and not by PG&E, the SPE will be a wholly-owned finance subsidiary of PG&E established for the purpose of carrying out this Financing Order of the Commission.
102. GO 24-B applies to the Energy Recovery Bonds.
103. PG&E should be authorized to report quarterly, on behalf of the SPE, all information required by GO 24-B regarding the Energy Recovery Bonds. However, PG&E should report this information on a monthly basis if directed to do so by Commission staff.
104. PG&E should remit to the Commission's Fiscal Office the required Section 1904(b) fee of $118,500. The SPE should reimburse PG&E for this fee as a cost of issuing the Bonds.
105. The Commission is required by CEQA and Rule 17.1 to consider the environmental consequences of projects that are subject to its discretionary approval. Thus, in deciding whether to approve A.04-07-032, the Commission must consider if doing so will alter an approved project, result in new projects, change facility operations, etc., in ways that have an environmental impact.
106. The CEQA guidelines recognize that the timing of the environmental review involves a balancing of competing factors, and that such review should occur as early as feasible in the planning process to enable environmental considerations to influence project design, yet late enough to provide meaningful information for environmental assessment.
107. There is insufficient information at this time to conduct a meaningful CEQA review. This is because PG&E represents that it cannot provide any of the basic details of the projects that may be funded with Bond proceeds, such as the location, design, and engineering of the projects.
108. PG&E should not use Bond proceeds to fund capital projects until PG&E has obtained any required Commission approvals for the projects, including any required environmental review under CEQA.
109. Notwithstanding Section 1708 or any other provision of law, any requirement under Division 1, Part 1, Chapter 4, Article 5.6 of the Public Utilities Code or this Financing Order that the Commission take action with respect to the subject matter of this Financing Order is binding on the Commission, as it may be constituted from time to time, and any successor agency exercising functions similar to the Commission, and the Commission will have no authority to rescind, alter or amend that requirement in this Financing Order.
110. This Financing Order is irrevocable to the extent specified in Section 848.1(g).
111. This Financing Order may be supplemented upon the Commission's own motion or a petition by a party to this proceeding, so long as such supplements are not inconsistent with the terms and provisions herein.
112. SB 772 and this Financing Order do not prevent the Commission from considering the following when setting rates and charges for PG&E: (i) The collection of FRAs in excess of amounts needed to pay Recovery Costs financed or refinanced by the Energy Recovery Bonds; and (ii) the collection of FRTAs in excess of amounts needed to pay federal income taxes and State franchise taxes associated with FRAs; 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 PG&E or its affiliates for federal income tax purposes, and (B) Treating the transfer of the Recovery Property by PG&E as a true sale for bankruptcy purposes.
113. PG&E should be allowed to set its electric rates and charges, other than the DRC and FRTAs, at levels designed to allow PG&E to recover franchise fees associated with the DRC and FRTAs, and PG&E should pay such franchise fees.
114. PG&E should maintain records, on behalf of the SPE and pursuant to Section 824 and GO 24-B, that (i) identify the specific Energy Recovery Bonds issued pursuant to this Financing Order, and (ii) demonstrate that the Bond proceeds and the proceeds from the sale of Recovery Property have been used only for the purposes authorized by this Financing Order.
115. Pursuant to Section 848.1(f), this Financing Order will become effective in accordance with its terms only after PG&E provides the Commission with PG&E's written consent to all the terms and conditions of this Financing Order.
116. There is no need for an evidentiary hearing in this proceeding.
117. This Financing Order complies with the provisions of Article 5.6 of the Public Utilities Code that was enacted by SB 772.
118. This authority granted by this Financing Order to issue Energy Recovery Bonds should be severable from, and not impacted by, the actions or inactions of the Commission or other bodies with respect to the Commission's determination of the extent to which the DRC and other Bond Charges shall be recoverable from any particular group, class, or type of Consumers.
119. This Financing Order construes, applies, implements, and interprets the provisions of SB 772. Therefore, applications for rehearing and judicial review of this Financing Order are subject to Sections 1731 and 1769. These laws provide that any application for rehearing of this Financing Order must be filed within 10 days of the final Order. The Commission must issue its decision on any application for rehearing within 20 days of the filing for rehearing. Any court challenge must be made directly to the California Supreme Court and must be filed within 10 days after the Commission denies rehearing.
120. The following order should be effective immediately in order to comply with statutory deadlines mandated by SB 772.
IT IS ORDERED that:
1. Pacific Gas and Electric Company (PG&E) is granted authority pursuant to Chapter 4, Article 5.6 of the Public Utilities Code, subject to the terms and conditions in this Financing Order, to do the following:
i. Arrange for the issuance of Recovery Bonds (referred to herein as Energy Recovery Bonds) as defined by Section 848(g). The total principal amount of the Energy Recovery Bonds (Bonds) shall not exceed $3.0 billion.
ii. Arrange for the issuance of the Bonds through a Financing Entity as that term is defined by Section 848(b). The Financing Entity shall be a Special Purpose Entity (SPE) that is formed and wholly owned by PG&E.
iii. Arrange for the Bond proceeds to be used to recover, finance, or refinance Recovery Costs as that term is defined by Section 848(i).
iv. Arrange for the Recovery, via nonbypassable rates and charges, of the following: (i) Fixed Recovery Amounts (FRAs) as that term is defined by Section 848(d), and (ii) Fixed Recovery Tax Amounts (FRTAs) as that term is defined by Section 848(e).
2. The Bonds shall be amortized on a level, annual mortgage style basis. The scheduled final maturity date of the Bonds shall be no earlier than October 1, 2012, and no later than April 1, 2013. The legal final maturity date of the Bonds shall be no later than April 1, 2015.
3. The SPE may elect to issue either one or two series of Energy Recovery Bonds. If the SPE elects to issue two series of Bonds, the principal amount of the first series shall equal the sum of the estimated after-tax unamortized portion of the Regulatory Asset authorized by Decision (D.) 03-12-035 at the time the first series of Bonds is issued, plus the estimated cost of issuing the first series of Bonds, less the after-tax amount of any energy supplier refunds expected to be received by PG&E prior to the issuance of the first series of Bonds and not yet credited against the Regulatory Asset pursuant to D.03-12-035.
4. The principal amount of the second series of Bonds shall equal the lesser of (i) $3.0 billion less the principal amount of the first series of Bonds, or (ii) the sum of the estimated remaining federal income taxes and State of California franchise taxes associated with the recovery of the unamortized balance of the Regulatory Asset at the time the second series of Bonds is issued, plus the estimated cost of issuing the second series of Bonds, less the pre-tax amount of any energy supplier refunds that PG&E expects to receive on or after the date the first series of Bonds is issued but before the date the second series is issued.
5. Any energy supplier refunds received after the second series of Bonds is issued shall be refunded to all Consumers, as defined in Section 848(a), via the Energy Recovery Bond Balancing Account (ERBBA).
6. If the SPE elects to issue two series of Bonds, the first series shall be issued in December 2004 or as soon as possible thereafter. The second series shall be issued within one year of the first series and no later than December 31, 2006. If the second series is not issued by May 31, 2005, PG&E shall file and serve a compliance filing by June 10, 2005, that (i) explains in detail why it was necessary to delay the issuance of the second series of Bonds beyond May 31, 2005, (ii) states when the second series will be issued, and (iii) identifies the amount of the Carrying Cost Credit forgone due to the delayed issuance of the second series of Bonds. Parties may file and serve comments and reply comments on PG&E's compliance filing. Opening comments shall be due on June 17, 2005, and reply comments on June 24, 2005.
7. The SPE shall not issue the Bonds until after PG&E has (i) obtained a favorable private letter ruling from the Internal Revenue Service (IRS) as described in the body of this Financing Order, or (ii) advised the Commission that PG&E has determined that it does not need a favorable private letter ruling.
8. If and when the IRS issues a private letter ruling, PG&E shall file a copy of the ruling and provide a copy to the Commission's financing Team no later than 5 days after the IRS issues its ruling.
9. PG&E shall advise the Commission in writing by no later than 10 days before the first series of Bonds is issued, with notice to the service list, if PG&E has determined that it does not need a private IRS letter ruling. If PG&E determines that it does not need a private letter ruling as it continues to advocate for favorable tax treatment, this compliance filing shall satisfy the requirement that PG&E obtain, or determine that it does not need, a private letter ruling that states the Bond transaction is not a presently taxable event.
10. If PG&E determines that an IRS private letter ruling is not needed, it may increase the amount of overcollateralization of the Bonds and the equity contributed to the SPE in order to strengthen the position that PG&E will take in its income tax returns that the Bond transaction is not a presently taxable event. The maximum amount of overcollateralization and equity contribution shall each be no more than 1.5 percent of the initial Bond principal amount.
11. The Bonds issued pursuant to this Financing Order shall contain a legend 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 principal of, or interest on, this bond."
12. Acting as servicer for the Recovery Property, PG&E shall recover the FRAs via the Dedicated Rate Component (DRC). Acting on its own behalf PG&E, may recover the FRTAs via the ERBBA charge.
13. The owners of Recovery Property will be entitled to recover DRC revenues in the aggregate amount equal to the principal amount of the associated series of Energy Recovery Bonds, all interest thereon, any credit enhancements, and all related fees and costs with respect to the scheduled payment of the associated series of Energy Recovery Bonds, as well as other amounts payable under any interest rate swap agreement or the indenture pursuant to which the associated series of Energy Recovery Bonds is issued.
14. The revenue requirement for the ERBBA charge shall consist of the Bond-related costs and benefits identified in the body of this Financing Order, including any FRTAs.
15. The DRC and ERBBA charge shall be nonbypassable and recovered from all existing and future Consumers, as defined in Section 848(a), in PG&E's service territory, except those Consumers and types of electric load specified in Section 848(b) and (c) shall not have to pay the DRC and ERBBA charge. Except to the extent limited by caps presently imposed on rates and charges for certain Consumer classes, the DRC and ERBBA charge shall be imposed on all non-exempted Consumers on an equal cents per kWh basis.
16. There shall be a separate DRC for each series of Bonds.
17. To implement the DRC for each series of Bonds, PG&E shall file an Issuance Advice Letter in the form, timeframe, and manner described in the body of this Financing Order. The Issuance Advice Letter shall be effective upon filing. The DRC established by each Issuance Advice Letter shall be effective 10 days after the Advice Letter is filed, unless a later date is requested by PG&E that is no more than 60 days after the issuance of the associated series of Bonds.
18. Once Recovery Property is established pursuant to an Issuance Advice Letter, it shall not be adjusted in response to protests to the Advice Letter. Any necessary adjustment shall be implemented via the ERBBA or other appropriate mechanism.
19. PG&E shall file a DRC tariff no later than 10 days after this Financing Order is mailed. The DRC tariff shall be based on the pro forma tariff contained in Appendix C of Application (A.) 04-05-041. The DRC tariff shall be effective simultaneously with the effective date of the DRC specified in the first Issuance Advice Letter.
20. If necessary to meet rating agency requirements or to address the timing of initial period DRC collections, the Energy Recovery Bonds may have an initial payment period longer than other payment periods, amortization of principal may be deferred in whole or in part in connection with the scheduled payment of debt service on each series of Energy Recovery Bonds during the first year, and/or a portion of the first period interest payment may be financed by Energy Recovery Bonds.
21. Total issuance costs for all Energy Recovery Bonds shall not exceed $25 million, plus any costs associated with the Commission's Financing Team.
22. The SPE may obtain credit enhancements for the Energy Recovery Bonds, but only if (i) the credit enhancements are required for tax purposes, or (ii) the all-in cost of the Bonds with the credit enhancements is less than without the enhancements. Any credit enhancement costs collected through the DRC, in excess of total debt service and other Bond costs, shall be the property of the SPE. After the Energy Recovery Bonds are repaid, the increase in value of PG&E's equity interest in the SPE will be returned to Consumers through the ERBBA.
23. The overcollateralization amount may be 0.50% of the initial principal amount for each series of Energy Recovery Bonds or such greater amount as required for tax purposes or by the rating agencies. The overcollateralization amount for each series of Bonds shall be (i) set forth in the Issuance Advice Letter for each series of Bonds, and (ii) funded in equal amounts on each debt service payment date, or in such other amounts required for tax purposes or by the rating agencies.
24. PG&E shall sell or assign all of its interest in Recovery Property arising from or constituting the DRC revenues that are the subject of this Financing Order to the SPE identified in Ordering Paragraph 1.
25. Subject to compliance with the specific requirements of this Financing Order, including those requirements set forth in the body of this Financing Order and the accompanying Conclusions of Law, PG&E and the SPE may establish the terms and conditions of the Bonds, including repayment schedules, term, payment dates, collateral, credit enhancement, required debt service, reserves, indices and other financing costs and features and costs.
26. The SPE shall transfer the Bond proceeds (net of issuance costs) to PG&E in partial payment of the purchase price of the Recovery Property. The remaining balance of the purchase price shall be paid from the SPE's equity funds.
27. The owner of Recovery Property shall have the right to recover principal, interest, and related costs associated with the Energy Recovery Bonds through the DRC authorized in this Financing Order.
28. The SPE shall (i) include one or more independent members on its board of directors in the case of a corporation or a limited liability company, or an independent trustee in the case of a trust; (ii) have restrictions on its ability to declare bankruptcy or to engage in corporate reorganizations; and (iii) limit its activities to those related to the Energy Recovery Bonds.
29. After PG&E has sold, assigned, or otherwise transferred its interest in Recovery Property to the SPE, PG&E shall (i) operate its system to provide service to its customers, (ii) act as servicer under the transaction documents associated with the related Energy Recovery Bonds, and (ii) as servicer, bill and collect amounts in respect of the DRC for the benefit and account of the SPE and account for and remit these amounts to or for the account of the SPE.
30. PG&E may contribute equity to the SPE. The SPE equity, equal to at least 0.50% of the total initial Bond principal, shall be pledged to secure the Energy Recovery Bonds and shall be deposited into an account held by the Bond Trustee.
31. The Commission shall have full access to the books and records of the SPE. PG&E should not make any profit from the SPE, except for an authorized return on PG&E's equity investment in the SPE. If the equity capital is drawn upon, it may be replenished via the DRC.
32. The Energy Recovery Bonds authorized by this Financing Order are exempt from the Competitive Bidding Rule set forth in Resolution F-616.
33. Prior to the issuance of each series of Energy Recovery Bonds, the Bonds and the associated Bond transaction shall be reviewed and approved by the Commission's Financing Team consisting of the Commission's General Counsel, the Director of the Energy Division, other Commission staff, outside bond counsel, and any other outside experts that the Financing Team deems necessary. The other outside expertise may include, for example, an independent financial advisor to assist the Financing Team in overseeing and reviewing the issuance of each series of Bonds. The Financing Team's approval of each series of Bonds shall be evidenced by a letter from the Financing Team to PG&E. Any costs incurred by the Financing Team in connection with its review and approval of each series of Bonds shall be treated as a Bond issuance cost.
34. PG&E shall use the amounts that it derives from the Bond proceeds to fund capital expenditures and/or to retire outstanding long-term debt and common equity, subject to the condition that the percentage of common equity in PG&E's capital structure must comply with the Modified Settlement Agreement adopted by D.03-12-035.
35. Each PG&E customer bill shall disclose the amount of the DRC, that the DRC revenues are being transferred to the SPE, that PG&E is collecting the DRC on behalf of the SPE, and that the DRC does not belong to PG&E.
36. If a Consumer makes only partial payment of a bill, PG&E and each successor servicer (if any) shall allocate amounts collected from that customer pro rata among the DRC revenues, any FRTAs, and other rates and charges.
37. If a PG&E customer fails to pay the DRC, PG&E may shut off power to such customer in accordance with Commission-approved shut-off policies.
38. The True-Up Mechanism for adjusting the DRC that is described in the body of this Financing Order and the accompanying Conclusions of Law is adopted. PG&E shall submit annual and quarterly Routine True-Up Mechanism Advice Letters in the form, timeframe, and manner described in the body of this Financing Order and the accompanying Conclusions of Law. The adjustments to the DRC specified in these Advice Letters shall go into effect automatically.
39. PG&E may submit Non-Routine True-Up Mechanism Advice Letter filings to propose revisions to the logic, structure, or components of the cash flow model in Appendix A of A.04-07-032 as modified in the body of this Financing Order. Absent a Commission resolution modifying or rejecting proposed changes to the cash flow model, PG&E or a successor servicer may implement DRC adjustments proposed in a Non-Routine True-Up Mechanism Advice Letter on the first day of the next calendar quarter following the submittal of the Advice Letter.
40. All true-up adjustments to the DRC shall guarantee the billing of DRC charges necessary to generate the collection of amounts sufficient to make timely provision for all scheduled (or legally due) payments of principal, interest, all amounts payable to any swap counterparty in connection with the related series of Bonds, and any other amounts due in connection with the related series of Bonds (including ongoing fees and expenses and amounts required to be deposited in or allocated to any Collection Account or Subaccount). Such amounts are referred to as the Periodic Payment Requirement. True-up filings shall be based upon the cumulative differences, regardless of the reason, between the Periodic Payment Requirement and the actual amount of DRC remittances to the Bond Trustee for the series of Bonds.
41. PG&E shall establish by advice letter filing the ERBBA tariff, which includes the recovery of FRTAs, and the ERBBA charge as described in the body of this Financing Order and the accompanying Conclusions of Law.
42. The ERBBA shall operate in the manner described in the body of this Financing Order. After the initial ERBBA advice letter filing, the ERBBA charge shall be adjusted annually in a proceeding designated by the Commission. If no proceeding has been designated, PG&E shall file an annual advice letter in time to adjust the ERBBA charge on January 1st of the following calendar year.
43. Once the first series of Bonds is issued, PG&E shall eliminate the Regulatory Asset Revenue Adjustment Mechanism (RARAM) and transfer any balances in the RARAM to the ERBBA for amortization in future ERBBA charges. The RARAM and any associated charge shall be eliminated by the same advice letter that establishes the ERBBA.
44. The DRC and ERBBA charge may be combined into a single line item on Consumers' bills.
45. PG&E and the SPE shall account for revenues from the DRC and the ERBBA charge as described in the body of this Financing Order and the accompanying Conclusions of Law.
46. PG&E shall not resign as servicer without prior approval from the Commission.
47. An annual servicing fee shall be paid to PG&E or any subsequent servicer. The annual servicing fee paid to PG&E shall be within the range of 0.05 percent to 0.125 percent of the initial principal amount of the Bonds as required by the rating agencies to receive the highest possible Bond credit ratings. PG&E shall credit to Consumers via the ERBBA the amount of its annual servicing fee in excess of any recorded annual incremental costs. The annual fee paid to a successor servicer that bills only the DRC shall be within the range of 0.60 percent to 1.25 percent of the initial principal amount of the Bonds as required by the rating agencies to receive the highest possible Bond ratings.
48. If Consumers of electricity in PG&E's historic service territory are billed by other entities, PG&E (as servicer for the Recovery Property) may request these other entities to bill for the DRC and ERBBA charge and to remit the DRC and ERBBA charge revenues to PG&E on behalf of such Consumers.
49. Electric Service Providers that bill and collect the DRC from PG&E's ratepayers shall satisfy the requirements set forth in PG&E's Electric Rule 22.P.
50. The Commission will not approve the appointment of any third-party servicer of Recovery Property without first determining that (i) such approval will not cause any then-current credit rating of any then outstanding Energy Recovery Bonds to be withdrawn or downgraded, and (ii) the servicing fee paid to the third-party servicer is reasonable.
51. PG&E shall remit DRC revenues to the Bond Trustee, on behalf of the SPE, in accordance with the procedures described in the body of this Financing Order and the accompanying Conclusions of Law.
52. The Bond Trustee shall (i) account for all funds as described in the body of this Financing Order and the associated Conclusions of Law; (ii) invest all funds in investment grade short-term securities; and (iii) make principal and interest payments to Bond investors and pay other Bond-related costs.
53. PG&E shall be authorized to set its electric rates and charges, other than the DRC and FRTAs, at levels designed to allow PG&E to recover franchise fees associated with the DRC and FRTAs, and PG&E shall pay such franchise fees.
54. In the event of a default by PG&E in transferring the DRC revenues to the Bond Trustee, on behalf of the SPE, the following parties may petition the Commission to order the sequestration and payment to the Bond Trustee for the benefit of the SPE of revenues arising from the Recovery Property: (a) the holders of the Energy Recovery Bonds and the trustees or representatives thereof as beneficiaries of any statutory or other lien permitted by the Public Utilities Code, (b) the SPE or its assignees, and (c) pledgees or transferees, including transferees under Section 848.4, of the Recovery Property.
55. The DRCs to be implemented pursuant to the Issuance Advice Letters and True-up Mechanism Advice Letters shall be subject to (i) post-filing review by the Commission's Energy Division, and (ii) post-filing protests in accordance General Order 96-A, Section III.H. If the Energy Division finds mathematical errors in these advice letters, the Energy Division shall prepare for the Commission's consideration a resolution that adjusts the DRC, as appropriate.
56. Except as noted in the previous Ordering Paragraph, any adjustments to Bond-related costs and revenues adopted by the Commission shall not affect the DRC or any other regulatory mechanisms implemented to ensure that Bond investors receive timely payment of Bond principal and interest. Any adopted adjustments to Bond-related costs and revenues stemming from the Energy Division's review of Bond-related Advice Letters shall be recorded in the ERBBA and flowed through to Consumers in the same manner as all other costs and revenues recorded in the ERBBA.
57. PG&E shall implement a memorandum account to track the DRC and the ERBBA charge (collectively, Bond changes) applicable to new municipal load, consistent with the decision today in Rulemaking (R.) 02-01-011. The tracked amounts shall be subject to true-up and recovery. The disposition of the tracked amounts shall be decided in R.02-01-011 or a successor proceeding.
58. The principles adopted in a companion decision issued today in R.02-01-011 shall apply to the responsibility of new municipal load under Section 848.1(c) for the Bond Charges adopted by this Financing Order.
59. PG&E shall file an advice letter to conform the Bond Charges to the Customer Responsibility Surcharge (CRS) with respect to new municipal load. This advice letter shall be filed in accordance with the procedures and timetable for implementation of the municipal departing load CRS specified in R.02-01-011.
60. In Phase II of PG&E's GRC proceeding in A.04-06-024, the San Francisco Bay Area Rapid Transit District (BART) may raise the issue of whether, and to what extent, BART is exempt from the Bond Charges pursuant to SB 1201.
61. The Bond Charges shall be applicable to all departing load (DL) Consumers except those that have been exempted from Bond Charges by the Commission or the Legislature.
62. Once the Commission adopts procedures for determining the amount of DL that is subject to the Regulatory Asset charge, whether in response to PG&E's pending advice letters or in another proceeding, PG&E shall file an advice letter apply the adopted procedure to the Bond Charges.
63. Consistent with SB 772 and the decision today in R.02-01-011, PG&E shall establish a memorandum account to track the amount of Bond Charges applicable to DL. The tracked amounts shall be subject to true-up and recovery. PG&E shall recover the tracked amounts from DL Consumers after the Commission has adopted a method for determining the amount of DL that is subject to the Bond Charges.
64. If for any reason the DRC actually collected from DL Consumers is subject to refund, those amounts may be held by PG&E and remitted to the SPE only after there is a final determination that such amounts are not subject to adjustment or refund.
65. The issue of whether Bond Charges should be included under the CRS cap of $0.027/kWh shall be addressed in Phase II of PG&E's General Rate Case (GRC) proceeding in A.04-06-024 or such other proceeding as may be subsequently determined by the Commission. In the interim, the cap shall apply to Bond Charges that accrue to non-exempted DL. The procedure and priority for recovering Bond Charges under the CRS cap from non-exempted DL shall mirror those adopted for the recovery of the Regulatory Asset in D.03-07-028 and D.04-02-062.
66. CARE, medical baseline, and residential Tier 1 and Tier 2 Consumers shall not receive the same Bond-related rate reduction as other Consumers. ORA may ask the Commission to reconsider this issue in Phase II of PG&E's GRC.
67. All regulatory approvals within the jurisdiction of the Commission that are necessary for the securitization of the DRC associated with Recovery Costs that are the subject of A.04-07-032, and all related transactions contemplated in the application, are hereby granted.
68. PG&E shall comply with all applicable environmental laws and regulations when planning and implementing any capital expenditure programs that are funded, in whole or in part, with the proceeds from the Bonds authorized by this Financing Order.
69. Pursuant to Section 824 and General Order 24-B, PG&E shall maintain records that (i) identify the specific Energy Recovery Bonds issued pursuant to this Financing Order, and (ii) demonstrate that the proceeds from the Energy Recovery Bonds have been used only for the purposes authorized by this Financing Order.
70. This Financing Order shall become effective in accordance with its terms and conditions only when PG&E provides its written consent to all terms and conditions of this Financing Order. This Financing Order shall be void and of no force or effect if PG&E does not provide its written consent to all terms and conditions of this Financing Order.
71. PG&E shall file and serve within 10 days from the date this Financing Order is mailed a written statement that either (i) PG&E consents to all terms and conditions of this Financing Order, or (ii) PG&E does not consent to all terms and conditions of this Financing Order. If the latter, PG&E's written statement shall identify the specific terms and conditions it does not consent to and explain why it does not consent to these terms and conditions.
72. Following PG&E's written consent, this Financing Order, together with the DRC and FRTAs authorized by this Financing Order, shall be binding upon PG&E and any successor to PG&E that provides electric distribution service directly to Consumers of electricity within the geographical service area to which PG&E provided electric distribution service as of December 19, 2003.
73. On or after the effective date of this Financing Order, upon the request of PG&E, the SPE, the indenture trustee in connection with a series of Energy Recovery Bonds (Trustee), or all of them, the Commission's General Counsel shall execute and deliver the following to PG&E, the SPE, and/or the Trustee: (i) a certificate that attaches a true, correct, and complete copy of this Financing Order and certifies such copy to be the act and deed of this Commission; (ii) a certificate that states this Financing Order has not been altered, rescinded, amended, modified, revoked, or supplemented as of the date of the closing of any series of Energy Recovery Bonds authorized by this Financing Order; and (iii) a certificate that states the Commission's Financing Team has reviewed and approved each series of Energy Recovery Bonds in accordance with this Financing Order.
74. Within 10 days from the date when all preconditions to the issuance of the Bonds have been satisfied, and in any event prior to the issuance of the first series of Bonds, PG&E shall remit a check to the Commission's Fiscal Office in the amount of $118,500 and the SPE shall reimburse PG&E for such payment. The decision number of this Financing Order shall be written on the face of the check.
75. Application 04-07-032 is granted and denied to the extent set forth in the previous Ordering Paragraphs.
76. The authority granted by this Financing Order to issue Energy Recovery Bonds shall be severable from, and not impacted by, the actions or inactions of the Commission or other bodies with respect to the Commission's determination of the extent to which the DRC and other Bond Charges shall be recoverable from any particular group, class, or type of Consumer.
77. This proceeding is closed.
This order is effective today.
Dated November 19, 2004, at San Francisco, California.
MICHAEL R. PEEVEY
President
GEOFFREY F. BROWN
SUSAN P. KENNEDY Commissioners
I reserve the right to file a dissent.
/s/ CARL W. WOOD
Commissioner
I reserve the right to file a dissent.
/s/ LORETTA M. LYNCH
Commissioner
Appendix A
Appendix A to A0407032
