BILL NUMBER: AB 1890	PROPOSED
	BILL TEXT
	PROPOSED CONFERENCE REPORT   AUGUST 28, 1996
	CONFERENCE REPORT NO.   1
	PROPOSED IN CONFERENCE   AUGUST 28, 1996
	AMENDED IN SENATE   JUNE 19, 1996
	AMENDED IN SENATE   APRIL 8, 1996
	AMENDED IN ASSEMBLY   JULY 19, 1995
	AMENDED IN ASSEMBLY   JULY 11, 1995
	AMENDED IN ASSEMBLY   JUNE 19, 1995
	AMENDED IN ASSEMBLY   APRIL 25, 1995

INTRODUCED BY  Assembly  Members Brulte, Conroy, and Martinez
  Member Brulte 
    (Principal coauthors:  Assembly Members Conroy, Kuykendall,
and Martinez) 
    (Principal coauthors:  Senators Leonard, Peace, and Sher)

    (Coauthors:  Assembly Members Ackerman, Alby, Baca, Battin,
Baugh, Boland, Frusetta, Goldsmith, Harvey, Margett, McPherson,
Miller, Morrissey, Morrow, Pringle, Richter, Alpert, Baldwin, Brown,
Bustamante, Cunneen, Davis, Ducheny, Escutia, Gallegos, Hawkins,
Hauser, House, Kaloogian, Katz, Knowles, Machado, Mazzoni, Kevin
Murray, Willard Murray, Napolitano, Olberg, Poochigian, Rainey,
Rogan, Takasugi, and Woods) 
    (Coauthors:  Senators Alquist, Calderon, Haynes, Johannessen,
Kelley, Maddy, Ayala, Dills, Costa, Craven, Hughes, Johnston, Kopp,
Killea, Leslie, Marks, Petris, Polanco, Rosenthal, Russell, Solis,
and Monteith) 

                        FEBRUARY 24, 1995

    An act relating to public utilities.   An
act to amend Sections 955.1 and 3440.1 of the Civil Code, to amend
Section 9104 of the Commercial Code, to amend Sections 63010,
63025.1, and 63071 of, and to add Article 6 (commencing with Section
63048) to Chapter 2 of Division 1 of Title 6.7 of, the Government
Code, to amend Section 216 of, to add Chapter 2.3 (commencing with
Section 330) to, to add Article 5.5 (commencing with Section 840) to
Chapter 4 of, Part 1 of Division 1 of, to add Division 4.9
(commencing with Section 9600) to, and to repeal Article 12
(commencing with Section 394) of Chapter 2.3 of Part 1 of Division 1
of, the Public Utilities Code, relating to public utilities, making
an appropriation therefor, and declaring the urgency thereof, to take
effect immediately. 



	LEGISLATIVE COUNSEL'S DIGEST


   AB 1890, as amended, Brulte.  Public utilities:   electrical
 restructuring  of the electric industry  .

   Existing law provides for the furnishing of utility services,
including residential electrical, gas, heat, and water services, by
privately owned public utilities subject to the jurisdiction and
control of the Public Utilities Commission and similar services by
publicly owned public utilities including municipal corporations
subject to their governing bodies and municipal utility districts and
public utility districts subject to their boards and directors.
   The bill would amend the Public Utilities Act to require that the
commission undertake various actions, including the facilitation of
the efforts of the state's electrical corporations to develop and
obtain authorization of the Federal Energy Regulatory Commission for
the creation and operation of an Independent System Operator and an
Independent Power Exchange, and the authorization of direct
transactions between electricity suppliers and end use customers,
subject to implementation of a nonbypassable charge.
   This bill would prohibit any person, corporation, electrical
corporation, or local publicly owned electric utility or other
governmental entity other than a retail customer's existing electric
service provider as of December 20, 1995, from providing electric
service to a retail customer of a publicly owned electric utility
unless the customer pays to the utility currently providing electric
service, a nonbypassable generation-related severance fee or
transition charge, as defined, established by the regulatory body for
that utility.
   The bill would prohibit a local publicly owned electric utility or
other governmental entity from providing electrical service to a
retail customer of an electrical corporation unless that customer
pays a nonbypassable transition charge to the electrical corporation.

   The bill would require the local regulatory body of each local
publicly owned electric utility to determine whether it will
authorize direct transactions between electricity suppliers and end
use customers, subject to implementation of the nonbypassable
severance fee or transition charge, and provide for procedures to
implement the direct transactions.
   This bill would provide for the issuance of rate reduction bonds
for the recovery of transition costs, as defined, by electrical
corporations, pursuant to the restructuring of the electrical
services industry.
   Under the Bergeson-Peace Infrastructure and Economic Development
Bank Act, the California Infrastructure and Economic Development Bank
is authorized to, among other things, issue and sell or purchase
bonds, as defined, make loans, and provide for other types of
financing for qualifying projects for public improvements by
specified public agencies, known as sponsors, and to execute any
instrument necessary, convenient, or appropriate to carry out any
power expressly given to the bank by the act.  The act also
establishes and makes available to the bank the California
Infrastructure Bank Fund, a special fund continuously appropriated
for these purposes.
   By providing for the financing of transition costs under the act
which is a new use of continuously appropriated funds, this bill
would make an appropriation.
   The bill would also incorporate changes to Section 216 of the
Public Utilities Code proposed by AB 2501, to take effect if both
bills are chaptered and this bill is chaptered last.
   Since a violation of the Public Utilities Act is a misdemeanor,
the bill would impose additional duties upon local law enforcement
agencies, and the bill would also impose additional duties on local
agencies, thereby constituting a state-mandated local program.
  The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state.  Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.
  This bill would declare that it is to take effect immediately as an
urgency statute.  
   Under existing law, the Public Utilities Commission is vested with
regulatory authority over public utilities.
   This bill would state the intent of the Legislature with respect
to the restructuring of the electric industry.
   The bill would become operative only if AB 3153 is enacted.

   Vote:   majority   2/3  .
Appropriation:   no   yes  .  Fiscal
committee:   no   yes  .  State-mandated
local program:   no   yes  .


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  
  SECTION 1.  It is the intent of the Legislature to  
  SECTION 1.  (a) The Legislature finds and declares that the
restructuring of the California electricity industry has been driven
by changes in federal law intended to increase competition in the
provision of electricity.  It is the intent of the Legislature to
ensure that California's transition to a more competitive electricity
market structure allows its citizens and businesses to achieve the
economic benefits of industry restructuring at the earliest possible
date, creates a new market structure that provides competitive, low
cost and reliable electric service, provides assurances that
electricity customers in the new market will have sufficient
information and protection, and preserves California's commitment to
developing diverse, environmentally sensitive electricity resources.
   (b) It is the intent of the Legislature to provide the legislative
foundation for transforming the regulatory framework of California's
electric industry in ways that meet the objectives stated in
subdivision (a).  It is the further intent of the Legislature that
during a limited transition period ending March 31, 2002, to provide
for all of the following:
   (1) Accelerated, equitable, nonbypassable recovery of transition
costs associated with uneconomic utility investments and contractual
obligations.
   (2) An immediate rate reduction of no less than 10 percent for
residential and small commercial ratepayers.
   (3) The financing of the rate reduction through the issuance of
"rate reduction bonds" that create no new financial obligations or
liabilities for the State of California.
   (4) An anticipated result through implementation of this act of a
subsequent, cumulative rate reduction for residential and small
commercial customers of no less than 20 percent by April 1, 2002.
   (5) A "fire wall" that protects residential and small business
consumers from paying for statewide transition cost policy exemptions
required for reasons of equity or business development and
retention.
   (6) Protection of the interests of utility employees who might
otherwise be economically displaced in a restructured industry.
   (c) It is the intent of the Legislature to direct the creation of
a proposed new market structure featuring two state chartered,
nonprofit market institutions:  a Power Exchange charged with
providing an efficient, competitive auction to meet electricity loads
of exchange customers, open on a nondiscriminatory basis to all
electricity providers; and an Independent System Operator with
centralized control of the statewide transmission grid, charged with
ensuring the efficient use and reliable operation of the transmission
system.  A five-member Oversight Board comprised of three
gubernatorial appointees, an appointee of the Senate Committee on
Rules and an appointee of the Speaker of the Assembly will oversee
the two new institutions and appoint governing boards that are
broadly representative of California electricity users and providers.
  It is the further intent of the Legislature to direct the
Independent System Operator to seek federal authorization to perform
its functions and to be able to secure the generation and
transmission resources needed to achieve specified planning and
operational reserve criteria.  It is the further intent of the
Legislature to require development of maintenance standards that will
reduce the potential for outages and secure participation in the
operation of the Independent System Operator by the state's
independent local publicly owned utilities.
   (d) It is the intent of the Legislature to protect the consumer by
requiring registration of certain sellers, marketers, and
aggregators of electricity service, requiring information to be
provided to consumers, and providing for the compilation and
investigation of complaints.  It is the further intent of the
Legislature to continue to fund low-income ratepayer assistance
programs, public purpose programs for public goods research,
development and demonstration, demand-side management and renewable
electric generation technologies in an unbundled manner.
   (e) It is the intent of the Legislature that electrical
corporations shall, by June 1, 1997, or on the earliest possible
date, apply concurrently for financing orders from the Public
Utilities Commission and rate reduction bonds from the California
Infrastructure and Economic Development Bank in amounts sufficient to
achieve a rate reduction in the most expeditious manner for
residential and small commercial customers of not less than 10
percent for 1998 and continuing through March 31, 2002.
  SEC. 2.  Section 955.1 of the Civil Code is amended to read: 
   955.1.  (a) Except as provided in Sections 954.5 and 955 and
subject to subdivisions (b) and (c), a transfer other than one
intended to create a security interest  (Section 9102(1)(a)
  (paragraph (1) of subdivision (a) of Section 9102
 of the Commercial Code) of any general intangible (Section 9106
of the Commercial Code) consisting of any right to payment and any
transfer of accounts or chattel paper excluded from the coverage of
Division 9 of the Commercial Code by  Section 9104(f) thereof
  subdivision (f) of Section 9104 of the Commercial
Code  shall be deemed perfected as against third persons upon
there being executed and delivered to the transferee an assignment
thereof in writing.
   (b) As between bona fide assignees of the same right for value
without notice, the assignee first giving notice thereof to the
obligor in writing has priority.
   (c)  Such an   The  assignment is not,
of itself, notice to the obligor so as to invalidate any payments
made by the obligor to the transferor.  
   (d) This section does not apply to transfers or assignments of
transition property, as defined in Section 840 of the Public
Utilities Code.  
  SEC. 3.  Section 3440.1 of the Civil Code is amended to read: 

   3440.1.  This chapter does not apply to any of the following:
   (a) Things in action.
   (b) Ships or cargoes if either are at sea or in a foreign port.
   (c) The sale of accounts or chattel paper governed by the Uniform
Commercial Code, security interests, and contracts of bottomry or
respondentia.
   (d) Wines or brandies in the wineries, distilleries, or wine
cellars of the makers or owners of the wines or brandies, or other
persons having possession, care, and control of the wines or
brandies, and the pipes, casks, and tanks in which the wines or
brandies are contained, if the transfers are made in writing and
executed and acknowledged, and if the transfers are recorded in the
book of official records in the office of the county recorder of the
county in which the wines, brandies, pipes, casks, and tanks are
situated.
   (e) A transfer or assignment made for the benefit of creditors
generally or by any assignee acting under an assignment for the
benefit of creditors generally.
   (f) Property exempt from enforcement of a money judgment.
   (g) Standing timber.
   (h) Subject to the limitations in Section 3440.3, a transfer of
personal property if all of the following conditions are satisfied:
   (1) Prior to the date of the intended transfer, the transferor or
the transferee files a financing statement, with respect to the
property transferred, signed by the transferor.  The financing
statement shall be filed in the office of the Secretary of State in
accordance with Chapter 4 (commencing with Section 9401) of Division
9 of the Commercial Code, but may use the terms "transferor" in lieu
of "debtor" and "transferee" in lieu of "secured party."  The
provisions of Chapter 4 (commencing with Section 9401) of Division 9
of the Commercial Code shall apply as appropriate to the financing
statement.
   (2) The transferor or the transferee publishes a notice of the
intended transfer one time in a newspaper of general circulation
published in the judicial district in which the personal property is
located, if there is one, and if there is none in the judicial
district, then in a newspaper of general circulation in the county
embracing the judicial district.  The publication shall be completed
not less than 10 days before the date the transfer occurs.  The
notice shall contain the name and address of the transferor and
transferee and a general statement of the character of the personal
property intended to be transferred, and shall indicate the place
where the personal property is located and a date on or after which
the transfer is to be made.
   (i) Personal property not located within this state at the time of
the transfer or attachment of the lien if the provisions of this
subdivision are not used for the purpose of evading this chapter.
   (j) A transfer of property which (1) is subject to a statute or
treaty of the United States or a statute of this state that provides
for the registration of transfers of title or issuance of
certificates of title and (2) is so far perfected under that statute
or treaty that a bona fide purchaser cannot acquire an interest in
the property transferred that is superior to the interest of the
transferee.
   (k) A transfer of personal property in connection with a
transaction in which the property is immediately thereafter leased by
the transferor from the transferee provided the transferee purchased
the property for value and in good faith (subdivision (c) of Section
10308 of the Commercial Code).  
   (l) Transition property, as defined in Section 840 of the Public
Utilities Code.   
  SEC. 4.  Section 9104 of the Commercial Code is amended to read:

   9104.  This division does not apply  : 
   (a) To a security interest subject to any statute of the United
States to the extent that such statute governs the rights of parties
to and third parties affected by transactions in particular types of
property; or
   (c) To a lien given by statute or other rule of law for services
or materials except as provided in Section 9310 on priority of such
liens; or
   (d) To a transfer of a claim for wages, salary or other
compensation of an employee; or
   (e) To a transfer, including creation of a security interest, by a
government or governmental subdivision or agency; or
   (f) To a sale of accounts or chattel paper as part of a sale of
the business out of which they arose, or an assignment of accounts or
chattel paper which is for the purpose of collection only, or a
transfer of a right to payment under a contract to an assignee who is
also to do the performance under the contract or a transfer of a
single account to an assignee in whole or partial satisfaction of a
preexisting indebtedness; or
   (g) To any loan made by an insurance company pursuant to the
provisions of a policy or contract issued by it and upon the sole
security of  such   the  policy or
contract; or
   (h) To a right represented by a judgment (other than a judgment
taken in a right to payment which was collateral); or
   (i) To any right of setoff; or
   (j) Except to the extent that provision is made for fixtures in
Section 9313, to the creation or transfer of an interest in or lien
on real estate, including a lease or rents thereunder and to any
interest of a lessor and lessee in any such lease or rents; or
   (k) To a transfer in whole or in part of any claim arising out of
tort.
   (l) To any security interest created by the assignment of the
benefits of any public construction contract under the Improvement
Act of 1911 (Division 7 (commencing with Section 5000), Streets and
Highways Code). 
   (m) To transition property, as defined in Section 840 of the
Public Utilities Code, except to the extent that the provisions of
this division are referenced in Article 5.5 (commencing with Section
840) of Chapter 4 of Part 1 of Division 1 of the Public Utilities
Code.   
  SEC. 5.  Section 63010 of the Government Code is amended to read:

   63010.  For purposes of this division, the following words and
terms shall have the following meanings unless the context clearly
indicates or requires another or different meaning or intent:
   (a) "Act" means the Bergeson-Peace Infrastructure and Economic
Development Bank Act.
   (b) "Bank" means the California Infrastructure and Economic
Development Bank.
   (c) "Board" or "bank board" means the board of directors of the
California Infrastructure and Economic Development Bank.
   (d) "Bond purchase agreement" means a contractual agreement
executed between the bank and a sponsor, or a special purpose trust
authorized by the bank or a sponsor, or both, whereby the bank or
special purpose trust authorized by the bank agrees to purchase bonds
of the sponsor for retention or sale.
   (e) "Bonds" means bonds, including structured, senior, and
subordinated bonds or other securities; loans; notes, including bond,
revenue, tax or grant anticipation notes; commercial paper; floating
rate, and variable maturity securities; and any other evidences of
indebtedness  or ownership  , including certificates of
participation  or beneficial interest, asset backed certificates
 , or lease-purchase  or installment purchase 
agreements, whether taxable or excludable from gross income for
federal income taxation purposes.
   (f) "Cost," as applied to a project or portion thereof financed
under this division, means all or any part of the cost of
construction, renovation, and acquisition of all lands, structures,
real or personal property, rights, rights-of-way, franchises,
licenses, easements, and interests acquired or used for a project;
the cost of demolishing or removing any buildings or structures on
land so acquired, including the cost of acquiring any lands to which
the buildings or structures may be moved; the cost of all machinery,
equipment, and financing charges; interest prior to, during, and for
a period after, completion of construction, renovation, or
acquisition, as determined by the bank; provisions for working
capital; reserves for principal and interest and for extensions,
enlargements, additions, replacements, renovations, and improvements;
the cost of architectural, engineering, financial and legal
services, plans, specifications, estimates, administrative expenses,
and other expenses necessary or incidental to determining the
feasibility of any project or incidental to the construction,
acquisition, or financing of any project , and transition costs
in the case of an electrical corporation  .
   (g)  "Electrical corporation" has the meaning set forth in
Section 218 of the Public Utilities Code.
   (h)  "Executive director" means the executive director of the
California Infrastructure and Economic Development Bank appointed
pursuant to Section 63021.  
   (h)  
   (i)  "Facilities" means real and personal property,
structures, conveyances, equipment, thoroughfares, buildings, and
supporting components thereof that are directly related to providing
the following:
   (1) "City streets" includes any street, avenue, boulevard, road,
parkway, drive, or other way that is any of the following:
   (A) An existing municipal roadway.
   (B) Is shown upon a plat approved pursuant to law and includes the
land between the street lines, whether improved or unimproved, and
may comprise pavement, bridges, shoulders, gutters, curbs,
guardrails, sidewalks, parking areas, benches, fountains, plantings,
lighting systems, and other areas within the street lines, as well as
equipment and facilities used in the cleaning, grading, clearance,
maintenance, and upkeep thereof.
   (2) "County highways" includes any county highway as defined in
Section 25 of the Streets and Highways Code, that includes the land
between the highway lines, whether improved or unimproved, and may
comprise pavement, bridges, shoulders, gutters, curbs, guardrails,
sidewalks, parking areas, benches, fountains, plantings, lighting
systems, and other areas within the street lines, as well as
equipment and facilities used in the cleaning, grading, clearance,
maintenance, and upkeep thereof.
   (3) "Drainage and flood control" includes ditches, canals, levees,
pumps, dams, conduits, pipes, storm sewers, and dikes necessary to
keep or direct water away from people, equipment, buildings, and
other protected areas as may be established by lawful authority, as
well as the acquisition, improvement, maintenance, and management of
floodplain areas and all equipment used in the maintenance and
operation of the foregoing.
   (4) "Educational facilities" includes libraries, child care
facilities, including, but not limited to, day care facilities, and
employment training facilities.
   (5) "Environmental mitigation measures" includes required
construction or modification of public infrastructure and purchase
and installation of pollution control and noise abatement equipment.

   (6) "Parks and recreational facilities" includes local parks,
recreational property and equipment, parkways and property.
   (7) "Port facilities" includes docks, harbors, ports of entry,
piers, ships, small boat harbors and marinas, and any other
facilities, additions, or improvements in connection therewith.
   (8) "Communications" includes facilities for telephone and
telecommunications service.
   (9) "Public transit" includes air and rail transport of goods,
airports, guideways, vehicles, rights-of-way, passenger stations,
maintenance and storage yards, and related structures, including
public parking facilities, equipment used to provide or enhance
transportation by bus, rail, ferry, or other conveyance, either
publicly or privately owned, that provides to the public general or
special service on a regular and continuing basis.
   (10) "Sewage collection and treatment" includes pipes, pumps, and
conduits that collect wastewater from residential, manufacturing, and
commercial establishments, the equipment, structures, and facilities
used in treating wastewater to reduce or eliminate impurities or
contaminants, and the facilities used in disposing of, or
transporting, remaining sludge, as well as all equipment used in the
maintenance and operation of the foregoing.
   (11) "Solid-waste collection and disposal" includes vehicles,
vehicle-compatible waste receptacles, transfer stations, recycling
centers, sanitary landfills, and waste conversion facilities
necessary to remove solid waste, except that which is hazardous as
defined by law, from its point of origin.
   (12) "Water treatment and distribution" includes facilities in
which water is purified and otherwise treated to meet residential,
manufacturing, or commercial purposes and the conduits, pipes, and
pumps that transport it to places of use.
   (13) "Defense conversion" includes, but is not limited to,
facilities necessary for successfully converting military bases
consistent with an adopted base reuse plan.
   (14) "Public safety facilities" includes, but is not limited to,
police stations, fire stations, court buildings, jails, juvenile
halls, and juvenile detention facilities.
   (15) "State highways" includes any state highway as described in
Chapter 2 (commencing with Section 230) of Division 1 of the Streets
and Highways Code, and the related components necessary for safe
operation of the highway.  
   (i)  
   (j)  "Financial assistance" in connection with a project,
includes, but is not limited to, any combination of grants, loans,
the proceeds of bonds issued by the bank or special purpose trust,
insurance, guarantees or other credit enhancements or liquidity
facilities, and contributions of money, property, labor, or other
things of value, as may be approved by resolution of the board or the
sponsor, or both; the purchase or retention of bank bonds, the bonds
of a sponsor for their retention or for sale by the bank, or the
issuance of bank bonds or the bonds of a special purpose trust used
to fund the cost of a project for which a sponsor is directly or
indirectly liable, including, but not limited to, bonds, the security
for which is provided in whole or in part pursuant to the powers
granted by Section 63025; bonds for which the bank has provided a
guarantee or enhancement, including, but not limited to, the purchase
of the subordinated bonds of the sponsor, the subordinated bonds of
a special purpose trust, or the retention of the subordinated bonds
of the bank pursuant to Chapter 4 (commencing with Section 63060); or
any other type of assistance deemed appropriate by the bank or the
sponsor, except that no direct loans shall be made to nonpublic
entities  other than in connection with the issuance of rate
reduction bonds pursuant to a financing order  .
   For purposes of this subdivision, "grant" does not include grants
made by the bank except when acting as an agent or intermediary for
the distribution or packaging of financing available from federal,
private, or other public sources.  
   (j)  
   (k) "Financing order" has the meaning set forth in Section 840 of
the Public Utilities Code.
   (l)  "Guarantee trust fund" means the California
Infrastructure Guarantee Trust Fund.  
   (k)  
   (m)  "Infrastructure bank fund" means the California
Infrastructure and Economic Development Bank Fund.  
   (l)  
   (n)  "Loan agreement" means a contractual agreement executed
between the bank or a special purpose trust and a sponsor that
provides that the bank or special purpose trust will loan funds to
the sponsor and that the sponsor will repay the principal and pay the
interest and redemption premium, if any, on the loan.  
   (m)  
   (o)  "Participating party" means any person, company,
corporation, partnership, firm, or other entity or group of entities
engaged in business within the state and that applies for financing
from the bank in conjunction with a sponsor for the purpose of
implementing a project.   However, in the case of a project
relating to the financing of transition costs and the acquisition of
transition property on the request of an electrical corporation, the
participating party shall be deemed to be the same entity as the
sponsor for the financing.  
   (n)  
   (p)  "Project" means designing, acquiring, planning,
permitting, entitling, constructing, improving, extending, restoring,
financing, and generally developing facilities within the state 
or financing transition costs and the acquisition of transition
property upon approval of a financing order by the Public Utilities
Commission, as provided in Article 5.5 (commencing with Section 840)
of Chapter 4 of Part 1 of Division 1 of the Public Utilities Code
 .  
   (o)  
   (q) "Rate reduction bonds" has the meaning set forth in Section
840 of the Public Utilities Code.
   (r)  "Revenues" means all receipts, purchase payments, loan
repayments, lease payments, and all other income or receipts derived
by the bank or a sponsor from the sale, lease, or other financing
arrangement undertaken by the bank, a sponsor or a participating
party, including, but not limited to, all receipts from a bond
purchase agreement, and any income or revenue derived from the
investment of any money in any fund or account of the bank or a
sponsor  and any receipts derived from transition property 
.  Revenues shall not include moneys in the General Fund of the
state.  
   (p)  
   (s)  "Special purpose trust" means a trust, partnership,
limited partnership, association, corporation, nonprofit corporation,
or other entity authorized under the laws of the state to serve as
an instrumentality of the state to accomplish public purposes and
authorized by the bank to acquire, by purchase or otherwise, for
retention or sale, the bonds of a sponsor or of the bank made or
entered into pursuant to this division and to issue special purpose
trust bonds or other obligations secured by these bonds or other
sources of public or private revenues.   In addition, special
purpose trust also means any entity authorized under the laws of the
state to serve as an instrumentality of the state to accomplish
public purposes and authorized by the bank to acquire transition
property and to issue rate reduction bonds.  
   (q)  
   (t)  "Sponsor" means any subdivision of the state or local
government including departments, agencies, commissions, cities,
counties, nonprofit corporations formed on behalf of a sponsor,
special districts, assessment districts, and joint powers authorities
within the state or any combination of these subdivisions that has,
or proposes to acquire, an interest in a project and that makes
application to the bank for financial assistance in connection with a
project in a manner prescribed by the bank.   In addition, an
electrical corporation shall be deemed to be the sponsor as well as
the participating party for any project relating to the financing of
transition costs and the acquisition of transition property on the
request of the electrical corporation.  
   (r)  
   (u)  "State" means the State of California.  
   (v) "Transition costs" has the meaning set forth in Section 840 of
the Public Utilities Code.
   (w) "Transition property" has the meaning set forth in Section 840
of the Public Utilities Code.   
  SEC. 6.  Section 63025.1 of the Government Code is amended to read:

   63025.1.  The bank board may do or delegate the following to the
executive director:
   (a) Sue and be sued in its own name.
   (b) As provided in Chapter 5 (commencing with Section 63070),
issue bonds and authorize special purpose trusts to issue bonds,
including, at the option of the board, bonds bearing interest that is
taxable for the purpose of federal income taxation, to pay all or
any part of the cost of any project.
                                                             (c)
Engage the services of private consultants to render professional and
technical assistance and advice in carrying out the purposes of this
division.
   (d) Employ attorneys, financial consultants, and other advisers as
may, in the bank's judgment, be necessary in connection with the
issuance and sale, or authorization of special purpose trusts for the
issuance and sale, of any bonds, notwithstanding Sections 11042 and
11043.
   (e) Contract for engineering, architectural, accounting, or other
services of appropriate state agencies as may, in its judgment, be
necessary for the successful development of a project.
   (f) Pay the reasonable costs of consulting engineers, architects,
accountants, and construction, land use, recreation, and
environmental experts employed by any sponsor or participating party
if, in the bank's judgment, those services are necessary for the
successful development of a project.
   (g)  Take   Acquire, take  title to, and
sell by installment sale or otherwise, lands, structures, real or
personal property, rights, rights-of-way, franchises, easements, and
other interests in lands that are located within the state  , or
transition property  as the bank may deem necessary or
convenient for the financing of the project, upon terms and
conditions that it considers to be reasonable.
   (h) Receive and accept from any source including, but not limited
to, the federal government, the state, or any agency thereof, loans,
contributions, or grants, in money, property, labor, or other things
of value, for, or in aid of, a project, or any portion thereof.
   (i) Make secured loans to any sponsor or participating party in
connection with the financing of a project in accordance with an
agreement between the bank and the sponsor or a participating party.
However, no loan shall exceed the total cost of the project as
determined by the sponsor or the participating party and approved by
the bank.
   (j) Make secured loans to any sponsor or participating party in
accordance with an agreement between the bank and the sponsor or
participating party to refinance indebtedness incurred by the sponsor
or participating party in connection with projects undertaken and
completed prior to any agreement with the bank or expectation that
the bank would provide financing.
   (k) Mortgage all or any portion of the bank's interest in a
project and the property on which any project is located, whether
owned or thereafter acquired, including the granting of a security
interest in any property, tangible or intangible.
   (l) Assign or pledge all or any portion of the bank's interests in
 transition property and the revenues therefrom, or 
assets, things of value, mortgages, deeds of trust, bonds, bond
purchase agreements, loan agreements, indentures of mortgage or
trust, or similar instruments, notes, and security interests in
property, tangible or intangible and the revenues therefrom, of a
sponsor or a participating party to which the bank has made loans,
and the revenues therefrom, including payment or income from any
interest owned or held by the bank, for the benefit of the holders of
bonds.
   (m) Receive or serve as a conduit for the making of grants, and
provide for contributions, guarantees, insurance, credit enhancements
or liquidity facilities, or other financial enhancements to a
sponsor or a participating party as financial assistance for a
project.
   (n) Lease the project being financed to a sponsor or a
participating party, upon terms and conditions that the bank deems
proper but shall not be leased at a loss; charge and collect rents
therefor; terminate any lease upon the failure of the lessee to
comply with any of the obligations thereof; include in any lease, if
desired, provisions that the lessee shall have options to renew the
lease for a period or periods, and at rents determined by the bank;
purchase any or all of the project; or, upon payment of all the
indebtedness incurred by the bank for the financing of the project,
the bank may convey any or all of the project to the lessee or
lessees.
   (o) Charge and equitably apportion among sponsors and
participating parties the bank's administrative costs and expenses
incurred in the exercise of the powers and duties conferred by this
division.
   (p) Issue, obtain, or aid in obtaining, from any department or
agency of the United States, from other agencies of the state, or
from any private company, any insurance or guarantee to, or for, the
payment or repayment of interest or principal, or both, or any part
thereof, on any loan, lease, or obligation or any instrument
evidencing or securing the same, made or entered into pursuant to
this division.
   (q) Notwithstanding any other provision of this division, enter
into any agreement, contract, or any other instrument with respect to
any insurance or guarantee; accept payment in the manner and form as
provided therein in the event of default by a sponsor or a
participating party; and issue or assign any insurance or guarantee
as security for the bank's bonds.
   (r) Enter into any agreement or contract, execute any instrument,
and perform any act or thing necessary or convenient to, directly or
indirectly, secure the bank's bonds, the bonds issued by a special
purpose trust, or a sponsor's obligations to the bank or to a special
purpose trust, including, but not limited to, bonds of a sponsor
purchased by the bank or a special purpose trust for retention or
sale, with funds or moneys that are legally available and that are
due or payable to the sponsor by reason of any grant, allocation,
apportionment or appropriation of the state or agencies thereof, to
the extent that the Controller shall be the custodian at any time of
these funds or moneys, or with funds or moneys that are or will be
legally available to the sponsor, the bank, or the state or any
agencies thereof by reason of any grant, allocation, apportionment,
or appropriation of the federal government or agencies thereof; and
in the event of written notice that the sponsor has not paid or is in
default on its obligations to the bank or a special purpose trust,
direct the Controller to withhold payment of those funds or moneys
from the sponsor over which it is or will be custodian and to pay the
same to the bank or special purpose trust or their assignee, or
direct the state or any agencies thereof to which any grant,
allocation, apportionment or appropriation of the federal government
or agencies thereof is or will be legally available to pay the same
upon receipt by the bank or special purpose trust or their assignee,
until the default has been cured and the amounts then due and unpaid
have been paid to the bank or special purpose trust or their
assignee, or until arrangements satisfactory to the bank or special
purpose trust have been made to cure the default.
   (s) Enter into any agreement or contract, execute any instrument,
and perform any act or thing necessary, convenient, or appropriate to
carry out any power expressly given to the bank by this division,
including, but not limited to, agreements for the sale of all or any
part, including principal, interest, redemption rights or any other
rights or obligations, of bonds of the bank or of a special purpose
trust, liquidity agreements, contracts commonly known as interest
rate swap agreements, forward payment conversion agreements, futures
or contracts providing for payments based on levels of, or changes
in, interest rates or currency exchange rates, or contracts to
exchange cash-flows or a series of payments, or contracts, including
options, puts or calls to hedge payments, rate, spread, currency
exchange, or similar exposure, or any other financial instrument
commonly known as a structured financial product.
   (t) Purchase, with the proceeds of the bank's bonds, transition
property or bonds issued by, or for the benefit of, any sponsor in
connection with a project, pursuant to a bond purchase agreement or
otherwise.  Bonds or transition property purchased pursuant to this
part may be held by the bank, pledged or assigned by the bank, or
sold to public or private purchasers at public or negotiated sale, in
whole or in part, separately or together with other bonds issued by
the bank, and notwithstanding any other provision of law, may be
bought by the bank at private sale.
   (u) Enter into purchase and sale agreements with all entities,
public and private, including state and local government pension
funds, with respect to the sale or purchase of bonds  or
transition property  .
   (v) Invest any moneys held in reserve or sinking funds, or any
moneys not required for immediate use or disbursement, in obligations
that are authorized by law for the investment of trust funds in the
custody of the Treasurer.
   (w) Authorize a special purpose trust or trusts to purchase or
retain, with the proceeds of the bonds of a special purpose trust,
transition property or bonds issued by, or for the benefit of, any
sponsor in connection with a project or issued by the bank or a
special purpose trust, pursuant to a bond purchase agreement or
otherwise.  Bonds or transition property purchased pursuant to this
title may be held by a special purpose entity, pledged or assigned by
a special purpose entity, or sold to public or private purchasers at
public or negotiated sale, in whole or in part, with or without
structuring, subordination or credit enhancement, separately or
together with other bonds issued by a special purpose trust, and
notwithstanding any other provision of law, may be bought by the bank
or by a special purpose trust at private sale.
   (x) Approve the issuance of any bonds, notes, or other evidences
of indebtedness by the California Economic Development and Financing
Authority, established pursuant to Section 15712, and the Rural
Economic Development Infrastructure Panel, established pursuant to
Section 15373.7.  
   (y) Approve the issuance of rate reduction bonds by an entity
other than the bank to acquire transition property upon approval of
the transaction in a financing order by the Public Utilities
Commission, as provided in Article 5.5 (commencing with Section 840)
of Chapter 4 of Part 1 of Division 1 of the Public Utilities Code.
  
  SEC. 7.  Article 6 (commencing with Section 63048) is added to
Chapter 2 of Division 1 of Title 6.7 of the Government Code, to read:


      Article 6.  Financing of Transition Costs

   63048.  Notwithstanding any other provision of this division, a
project for the financing of transition costs and the acquisition of
transition property upon the request of an electrical corporation
shall be deemed to be in the public interest and eligible for
financing by the bank, and Article 3 (commencing with Section 63040),
Article 4 (commencing with Section 63042), and Article 5 (commencing
with Section 63043), shall not apply to the project or financing.
The bank shall consider a project for financing transition costs and
the acquisition of transition property upon filing of an application
by an appropriate participating party, on the terms and conditions
the bank shall determine.  The bank shall establish procedures for
the expeditious review of applications from electrical corporations
for the issuance or approval of rate reduction bonds.  The review may
be concurrent with the Public Utilities Commission's processing of
an application for the pertinent financing order, so as to allow for
the issuance of rate reduction bonds as quickly as feasible after the
issuance of the pertinent financing order by the Public Utilities
Commission.  Notwithstanding any other provision of this division,
the bank shall have no authority to alter or modify any term or
condition related to the transition costs or the transition property
as set forth in the pertinent financing order, and shall have no
authority over any matter that is subject to the approval of the
Public Utilities Commission under Article 5.5 (commencing with
Section 840) of Chapter 4 of Part 1 of Division 1 of the Public
Utilities Code.  
  SEC. 8.  Section 63071 of the Government Code is amended to read:

   63071.  (a) Notwithstanding any other provision of law, but
consistent with Sections 1 and 18 of Article XVI of the California
Constitution, a sponsor may issue bonds for purchase by the bank
pursuant to a bond purchase agreement.  The bank may issue bonds or
authorize a special purpose trust to issue bonds.  These bonds may be
issued pursuant to the charter of any city or any city and county
that authorized the issuance of these bonds as a sponsor and may also
be issued by any sponsor pursuant to the Revenue Bond Law of 1941
(Chapter 6 (commencing with Section 54300) of Division 2 of Title 5)
to pay the costs and expenses pursuant to this title, subject to the
following conditions:
   (1) With the prior approval of the bank, the sponsor may sell
these bonds in any manner as it may determine, either by private
sale, or by means of competitive bid.
   (2) Notwithstanding Section 54418, the bonds may be sold at a
discount at any rate as the bank and sponsor shall determine.
   (3) Notwithstanding Section 54402, the bonds shall bear interest
at any rate and be payable at any time, as the sponsor shall
determine with the consent of the bank.
   (b) The total amount of bonds that may be outstanding at any one
time under this chapter shall not exceed five billion dollars
($5,000,000,000)  , exclusive of rate reduction bonds.  The total
amount of rate reduction bonds that may be outstanding at any one
time under this chapter shall not exceed ten billion dollars
($10,000,000,000)  .
   (c) Bonds for which moneys or securities have been deposited in
trust, in amounts necessary to pay or redeem the principal, interest,
and any redemption premium theron, shall be deemed not to be
outstanding for purposes of this section.   
  SEC. 9.  Section 216 of the Public Utilities Code is amended to
read: 
   216.  (a) "Public utility" includes every common carrier, toll
bridge corporation, pipeline corporation, gas corporation, electrical
corporation, telephone corporation, telegraph corporation, water
corporation, sewer system corporation, and heat corporation, where
the service is performed for, or the commodity is delivered to, the
public or any portion thereof.
   (b) Whenever any common carrier, toll bridge corporation, pipeline
corporation, gas corporation, electrical corporation, telephone
corporation, telegraph corporation, water corporation, sewer system
corporation, or heat corporation performs a service for, or delivers
a commodity to, the public or any portion thereof for which any
compensation or payment whatsoever is received, that common carrier,
toll bridge corporation, pipeline corporation, gas corporation,
electrical corporation, telephone corporation, telegraph corporation,
water corporation, sewer system corporation, or heat corporation, is
a public utility subject to the jurisdiction, control, and
regulation of the commission and the provisions of this part.
   (c) When any person or corporation performs any service for, or
delivers any commodity to, any person, private corporation,
municipality, or other political subdivision of the state, 
which   that  in turn either directly or
indirectly, mediately or immediately, performs that service for, or
delivers that commodity to, the public or any portion thereof, that
person or corporation is a public utility subject to the
jurisdiction, control, and regulation of the commission and the
provisions of this part.
   (d) Ownership or operation of a facility  which 
 that  employs cogeneration technology or produces power
from other than a conventional power source or the ownership or
operation of a facility which employs landfill gas technology does
not make a corporation or person a public utility within the meaning
of this section solely because of the ownership or operation of such
a facility.
   (e)  Any corporation or person engaged directly or indirectly in
developing, producing, transmitting, distributing, delivering, or
selling any form of heat derived from geothermal or solar resources
or from cogeneration technology to any privately owned or publicly
owned public utility, or to the public or any portion thereof, is not
a public utility within the meaning of this section solely by reason
of engaging in any of those activities.
   (f) The ownership or operation of a facility  which
  that  sells compressed natural gas at retail to
the public for use only as a motor vehicle fuel, and the selling of
compressed natural gas at retail from such a facility to the public
for use only as a motor vehicle fuel, does not make the corporation
or person a public utility within the meaning of this section solely
because of that ownership, operation, or sale.  
   (g) Generation assets owned by any public utility prior to January
1, 1997, and subject to rate regulation by the commission, shall
continue to be subject to regulation by the commission until those
assets have undergone market valuation in accordance with procedures
established by the commission.
   (h) The ownership, control, operation, or management of an
electric plant used for direct transactions or participation directly
or indirectly in direct transactions, as permitted by subdivision
(b) of Section 365, sales into the Power Exchange referred to in
Section 365, or the use or sale as permitted under subdivisions (b)
to (d), inclusive, of Section 218, shall not make a corporation or
person a public utility within the meaning of this section solely
because of that ownership, participation, or sale.   
  SEC. 9.5.  Section 216 of the Public Utilities Code is amended to
read: 
   216.  (a) "Public utility" includes every common carrier, toll
bridge corporation, pipeline corporation, gas corporation, electrical
corporation, telephone corporation, telegraph corporation, water
corporation, sewer system corporation, and heat corporation, where
the service is performed for, or the commodity is delivered to, the
public or any portion thereof.
   (b) Whenever any common carrier, toll bridge corporation, pipeline
corporation, gas corporation, electrical corporation, telephone
corporation, telegraph corporation, water corporation, sewer system
corporation, or heat corporation performs a service for, or delivers
a commodity to, the public or any portion thereof for which any
compensation or payment whatsoever is received, that common carrier,
toll bridge corporation, pipeline corporation, gas corporation,
electrical corporation, telephone corporation, telegraph corporation,
water corporation, sewer system corporation, or heat corporation, is
a public utility subject to the jurisdiction, control, and
regulation of the commission and the provisions of this part.
   (c) When any person or corporation performs any service for, or
delivers any commodity to, any person, private corporation,
municipality, or other political subdivision of the state, 
which   that  in turn either directly or
indirectly, mediately or immediately, performs that service for, or
delivers that commodity to, the public or any portion thereof, that
person or corporation is a public utility subject to the
jurisdiction, control, and regulation of the commission and the
provisions of this part.
   (d) Ownership or operation of a facility  which 
 that  employs cogeneration technology or produces power
from other than a conventional power source or the ownership or
operation of a facility which employs landfill gas technology does
not make a corporation or person a public utility within the meaning
of this section solely because of the ownership or operation of such
a facility.
   (e)  Any corporation or person engaged directly or indirectly in
developing, producing, transmitting, distributing, delivering, or
selling any form of heat derived from geothermal or solar resources
or from cogeneration technology to any privately owned or publicly
owned public utility, or to the public or any portion thereof, is not
a public utility within the meaning of this section solely by reason
of engaging in any of those activities.
   (f) The ownership or operation of a facility  which
  that  sells compressed natural gas at retail to
the public for use only as a motor vehicle fuel, and the selling of
compressed natural gas at retail from such a facility to the public
for use only as a motor vehicle fuel, does not make the corporation
or person a public utility within the meaning of this section solely
because of that ownership, operation, or sale.  
   (g) Ownership or operation of a facility that has been certified
by the Federal Energy Regulatory Commission as an exempt wholesale
generator pursuant to Section 32 of the Public Utility Holding
Company Act of 1935 (Chapter 2C (commencing with Section 79) of Title
15 of the United States Code) does not make a corporation or person
a public utility within the meaning of this section, solely due to
the ownership or operation of that facility. 
   (h) Generation assets owned by any public utility prior to January
1, 1997, and subject to rate regulation by the commission, shall
continue to be subject to regulation by the commission until those
assets have undergone market valuation in accordance with procedures
established by the commission.
   (i) The ownership, control, operation, or management of an
electric plant used for direct transactions or participation directly
or indirectly in direct transactions, as permitted by subdivision
(b) of Section 365, sales into the Power Exchange referred to in
Section 365, or the use or sale as permitted under subdivisions (b)
to (d), inclusive, of Section 218, shall not make a corporation or
person a public utility within the meaning of this section solely
because of that ownership, participation, or sale.   
  SEC. 10.  Chapter 2.3 (commencing with Section 330) is added to
Part 1 of Division 1 of the Public Utilities Code, to read:

      CHAPTER 2.3.  ELECTRICAL RESTRUCTURING
      Article 1.  General Provisions and Definitions

   330.  In order to provide guidance in carrying out this chapter,
the Legislature finds and declares all of the following:
   (a) It is the intent of the Legislature that a cumulative rate
reduction of at least 20 percent be achieved not later than April 1,
2002, for residential and small commercial customers, from the rates
in effect on June 10, 1996.  In determining that the April 1, 2002,
rate reduction has been met, the commission shall exclude the costs
of the competitively procured electricity and the costs associated
with the rate reduction bonds, as defined in Section 840.
   (b) The people, businesses, and institutions of California spend
nearly twenty-three billion dollars ($23,000,000,000) annually on
electricity, so that reductions in the price of electricity would
significantly benefit the economy of the state and its residents.
   (c) The Public Utilities Commission has opened rulemaking and
investigation proceedings with regard to restructuring California's
electric power industry and reforming utility regulation.
   (d) The commission has found, after an extensive public review
process, that the interests of ratepayers and the state as a whole
will be best served by moving from the regulatory framework existing
on January 1, 1997, in which retail electricity service is provided
principally by electrical corporations subject to an obligation to
provide ultimate consumers in exclusive service territories with
reliable electric service at regulated rates, to a framework under
which competition would be allowed in the supply of electric power
and customers would be allowed to have the right to choose their
supplier of electric power.
   (e) Competition in the electric generation market will encourage
innovation, efficiency, and better service from all market
participants, and will permit the reduction of costly regulatory
oversight.
   (f) The delivery of electricity over transmission and distribution
systems is currently regulated, and will continue to be regulated to
ensure system safety, reliability, environmental protection, and
fair access for all market participants.
   (g) Reliable electric service is of utmost importance to the
safety, health, and welfare of the state's citizenry and economy.  It
is the intent of the Legislature that electric industry
restructuring should enhance the reliability of the interconnected
regional transmission systems, and provide strong coordination and
enforceable protocols for all users of the power grid.
   (h) It is important that sufficient supplies of electric
generation will be available to maintain the reliable service to the
citizens and businesses of the state.
   (i) Reliable electric service depends on conscientious inspection
and maintenance of transmission and distribution systems.  To
continue and enhance the reliability of the delivery of electricity,
the Independent System Operator and the commission, respectively,
should set inspection, maintenance, repair, and replacement
standards.
   (j) It is the intent of the Legislature that California enter into
a compact with western region states.  That compact should require
the publicly and investor-owned utilities located in those states,
that sell energy to California retail customers, to adhere to
enforceable standards and protocols to protect the reliability of the
interconnected regional transmission and distribution systems.
                                                                 (k)
In order to achieve meaningful wholesale and retail competition in
the electric generation market, it is essential to do all of the
following:
   (1) Separate monopoly utility transmission functions from
competitive generation functions, through development of independent,
third-party control of transmission access and pricing.
   (2) Permit all customers to choose from among competing suppliers
of electric power.
   (3) Provide customers and suppliers with open, nondiscriminatory,
and comparable access to transmission and distribution services.
   (l) The commission has properly concluded that:
   (1) This competition will best be introduced by the creation of an
Independent System Operator and an independent Power Exchange.
   (2) Generation of electricity should be open to competition and
utility generation should be transitioned from regulated status to
unregulated status through means of commission-approved market
valuation mechanisms.
   (3) There is a need to ensure that no participant in these new
market institutions has the ability to exercise significant market
power so that operation of the new market institutions would be
distorted.
   (4) These new market institutions should commence simultaneously
with the phase-in of customer choice, and the public will be best
served if these institutions and the nonbypassable transition cost
recovery mechanism referred to in subdivisions (s) to (w), inclusive,
are in place simultaneously and no later than January 1, 1998.
   (m) It is the intention of the Legislature that California's
publicly owned electric utilities and investor-owned electric
utilities should commit control of their transmission facilities to
the Independent System Operator.  These utilities should jointly
advocate to the Federal Energy Regulatory Commission a pricing
methodology for the Independent System Operator that results in an
equitable return on capital investment in transmission facilities for
all Independent System Operator participants.
   (n) Opportunities to acquire electric power in the competitive
market must be available to California consumers as soon as
practicable, but no later than January 1, 1998, so that all customers
can share in the benefits of competition.
   (o) Under the existing regulatory framework, California's
electrical corporations were granted franchise rights to provide
electricity to consumers in their service territories.
   (p) Consistent with federal and state policies, California
electrical corporations invested in power plants and entered into
contractual obligations in order to provide reliable electrical
service on a nondiscriminatory basis to all consumers within their
service territories who requested service.
   (q) The cost of these investments and contractual obligations are
currently being recovered in electricity rates charged by electrical
corporations to their consumers.
   (r) Transmission and distribution of electric power remain
essential services imbued with the public interest that are provided
over facilities owned and maintained by the state's electrical
corporations.
   (s) It is proper to allow electrical corporations an opportunity
to continue to recover, over a reasonable transition period, those
costs and categories of costs for generation-related assets and
obligations, including costs associated with any subsequent
renegotiation or buyout of existing generation-related contracts,
that the commission, prior to December 20, 1995, had authorized for
collection in rates and that may not be recoverable in market prices
in a competitive generation market, and appropriate additions
incurred after December 20, 1995, for capital additions to generating
facilities existing as of December 20, 1995, that the commission
determines are reasonable and should be recovered, provided that the
costs are necessary to maintain those facilities through December 31,
2001.  In determining the costs to be recovered, it is appropriate
to net the negative value of above market assets against the positive
value of below market assets.
   (t) The transition to a competitive generation market should be
orderly, protect electric system reliability, provide the investors
in these electrical corporations with a fair opportunity to fully
recover the costs associated with commission approved
generation-related assets and obligations, and be completed as
expeditiously as possible.
   (u) The transition to expanded customer choice, competitive
markets, and performance based ratemaking as described in Decision
95-12-063, as modified by Decision 96-01-009, of the Public Utilities
Commission, can produce hardships for employees who have dedicated
their working lives to utility employment.  It is preferable that any
necessary reductions in the utility work force directly caused by
electrical restructuring, be accomplished through offers of voluntary
severance, retraining, early retirement, outplacement, and related
benefits.  Whether work force reductions are voluntary or
involuntary, reasonable costs associated with these sorts of benefits
should be included in the competition transition charge.
   (v) Charges associated with the transition should be collected
over a specific period of time on a nonbypassable basis and in a
manner that does not result in an increase in rates to customers of
electrical corporations.  In order to insulate the policy of
nonbypassability against incursions, if exemptions from the
competition transition charge are granted, a fire wall shall be
created that segregates recovery of the cost of exemptions as
follows:
   (1) The cost of the competition transition charge exemptions
granted to members of the combined class of residential and small
commercial customers shall be recovered only from those customers.
   (2) The cost of the competition transition charge exemptions
granted to members of the combined class of customers other than
residential and small commercial customers shall be recovered only
from those customers.  The commission shall retain existing cost
allocation authority provided that the fire wall and rate freeze
principles are not violated.
   (w) It is the intent of the Legislature to require and enable
electrical corporations to monetize a portion of the competition
transition charge for residential and small commercial consumers so
that these customers will receive rate reductions of no less than 10
percent for 1998 continuing through 2002.  Electrical corporations
shall, by June 1, 1997, or earlier, secure the means to finance the
competition transition charge by applying concurrently for financing
orders from the Public Utilities Commission and for rate reduction
bonds from the California Infrastructure and Economic Development
Bank.
   (x) California's public utility electrical corporations provide
substantial benefits to all Californians, including employment and
support of the state's economy.  Restructuring the electric services
industry pursuant to the act that added this chapter will continue
these benefits, and will also offer meaningful and immediate rate
reductions for residential and small commercial customers, and
facilitate competition in the supply of electric power.
   331.  The definitions set forth in this section shall govern the
construction of this chapter.
   (a) "Aggregator" means any marketer, broker, public agency, city,
county, or special district, that combines the loads of multiple
end-use customers in facilitating the sale and purchase of electric
energy, transmission, and other services on behalf of these
customers.
   (b) "Broker" means an entity that arranges the sale and purchase
of electric energy, transmission, and other services between buyers
and sellers, but does not take title to any of the power sold.
   (c) "Direct transaction" means a contract between any one or more
electric generators, marketers, or brokers of electric power and one
or more retail customers providing for the purchase and sale of
electric power or any ancillary services.
   (d) "Fire wall" means the line of demarcation separating
residential and small commercial customers from all other customers
as described in subdivision (e) of Section 367.
   (e) "Marketer" means any entity that buys electric energy,
transmission, and other services from traditional utilities and other
suppliers, and then resells those services at wholesale or to an
end-use customer.
   (f) "Microcogeneration facility" means a cogeneration facility of
less than one megawatt.
   (g) "Restructuring trusts" means the two tax-exempt public benefit
trusts established by Decision D. 96-08-038 of the Public Utilities
Commission to provide for design and development of the hardware and
software systems for the Power Exchange and the Independent System
Operator, respectively, and that may undertake other activities, as
needed, as ordered by the commission.
   (h) "Small commercial customer" means a customer that has a
maximum peak demand of less than 20 kilowatts.

      Article 2.  Oversight Board

   334.  The Legislature finds and declares that in order to ensure
the success of electric industry restructuring, in the transition to
a new market structure it is important to ensure a reliable supply of
electricity. Reliable electric service is of paramount importance to
the safety, health, and comfort of the people of California.
Transmission connections between electric utilities allow them to
share generation resources and reduce the number of power plants
necessary to maintain a reliable system.  The connections between
utilities also create exposure to events that can cause widespread
and extended transmission and service outages that reach far beyond
the originating utility service area.  California utilities and those
in the western United States voluntarily adhere to reliability
standards developed by the Western Systems Coordinating Council.  The
economic cost of extended electricity outages, such as those that
occurred in California and throughout the Western Systems
Coordinating Council on July 2, 1996, and August 10, 1996, to
California's residential, commercial, agricultural, and industrial
customers is significant.  The proposed restructuring of the
electricity industry would transfer responsibility for ensuring
short- and long-term reliability away from electric utilities and
regulatory bodies to the Independent System Operator and various
market-based mechanisms.  The Legislature has an interest in ensuring
that the change in the locus of responsibility for reliability does
not expose California citizens to undue economic risk in connection
with system reliability.
   335.  In order to ensure that the interests of the people of
California are served, a five-member Oversight Board shall be formed
as provided in Section 336.  Its functions shall be all of the
following:
   (a) To oversee the Independent System Operator and the Power
Exchange.
   (b) To determine the composition and terms of service and to
appoint the members of the governing boards of the Independent System
Operator and the Power Exchange.
   (c) To serve as an appeal board for majority decisions of the
Independent System Operator governing board.
   336.  (a) The five-member Oversight Board shall be comprised as
follows:
   (1) Three members, who are California residents and electricity
ratepayers, appointed by the Governor from a list jointly provided by
the California Energy Resources Conservation and Development
Commission and the Public Utilities Commission, and subject to
confirmation by the Senate.
   (2) One member of the Assembly appointed by the Speaker of the
Assembly.
   (3) One member of the Senate appointed by the Senate Committee on
Rules.
   (b) Legislative members shall be nonvoting members, however, they
are otherwise full members of the board with all rights and
privileges pertaining thereto.
   (c) Oversight Board members shall serve three-year terms with no
limit on reappointment.  For purposes of the initial appointments set
forth in paragraph (1), the Governor shall appoint one member to a
one-year term, one to a two-year term, and one to a three-year term.

   337.  The Oversight Board, as the appointing body, shall establish
nominating procedures and qualifications for Independent System
Operator governing board members.  The Independent System Operator
governing board shall be composed of California residents and shall
include, but not be limited to, representatives of investor-owned
utility transmission owners, publicly owned utility transmission
owners, nonutility electricity sellers, public buyers and sellers,
private buyers and sellers, industrial end-users, commercial
end-users, residential end-users, agricultural end-users, public
interest groups, and nonmarket participant representatives.  A simple
majority of the board shall consist of persons who are themselves
unaffiliated with electric generation, transmission or distribution
corporations.
   338.  The Oversight Board, as the appointing body, shall establish
nominating procedures and qualifications for Power Exchange
governing board members.  The Power Exchange governing board shall be
composed of California residents and shall include, but not be
limited to, representatives of investor-owned electric distribution
companies, publicly owned electric distribution companies, nonutility
generators, public buyers and sellers, private buyers and sellers,
industrial end-users, commercial end-users, residential end-users,
agricultural end-users, public interest groups, and nonmarket
participant representatives.
   339.  The Oversight Board is the appeal board for majority
decisions of the Independent System Operator governing board.  Only
members of the Independent System Operator governing board may appeal
a majority decision to the Oversight Board.
   340.  The Oversight Board shall take the steps that are necessary
to ensure the earliest possible incorporation of the Independent
System Operator and the Power Exchange as separately incorporated
public benefit, nonprofit corporations under the Corporations Code.

      Article 3.  Independent System Operator

   345.  The Independent System Operator shall ensure efficient use
and reliable operation of the transmission grid consistent with
achievement of planning and operating reserve criteria no less
stringent than those established by the Western Systems Coordinating
Council and the North American Electric Reliability Council.
   346.  The Independent System Operator shall immediately
participate in all relevant Federal Energy Regulatory Commission
proceedings.  The Independent System Operator shall ensure that
additional filings at the Federal Energy Regulatory Commission
request confirmation of the relevant provisions of this chapter and
seek the authority needed to give the Independent System Operator the
ability to secure generating and transmission resources necessary to
guarantee achievement of planning and operating reserve criteria no
less stringent than those established by the Western Systems
Coordinating Council and the North American Electric Reliability
Council.
   347.  The Independent System Operator governing board may form
appropriate technical advisory committees composed of market and
nonmarket participants to advise the Independent System Operator
governing board on issues including, but not limited to, rules and
protocols and operating procedures.
   348.  The Independent System Operator shall adopt inspection,
maintenance, repair, and replacement standards for the transmission
facilities under its control no later than March 31, 1997.  The
standards, which shall be performance or prescriptive standards, or
both, as appropriate, for each substantial type of transmission
equipment or facility, shall provide for high quality, safe, and
reliable service.  In adopting its standards, the Independent System
Operator shall consider:  cost, local geography and weather,
applicable codes, national electric industry practices, sound
engineering judgment, and experience.  The Independent System
Operators shall also adopt standards for reliability, and safety
during periods of emergency and disaster.  The Independent System
Operator shall require each transmission facility owner or operator
to report annually on its compliance with the standards.  That report
shall be made available to the public.
   349.  The Independent System Operator shall perform a review
following a major outage that affects at least l0 percent of the
customers of the entity providing the local distribution service.
The review shall address the cause of the major outage, the response
time and effectiveness, and whether the transmission facility owner
or operator's operation and maintenance practices enhanced or
undermined the ability to restore service efficiently and in a timely
manner.  If the Independent System Operator finds that the operation
and maintenance practices of the transmission facility owner or
operator prolonged the response time or was responsible for the
outage, the Independent System Operator may order appropriate
sanctions, subject to the Federal Energy Regulatory Commission
approving that authority.
   350.  The Independent System Operator, in consultation with the
California Energy Resources Conservation and Development Commission,
the Public Utility Commission, the Western Systems Coordinating
Council, and concerned regulatory agencies in other western states,
shall within six months after the Federal Energy Regulatory
Commission approval of the Independent System Operator, provide a
report to the Legislature that does the following:
   (a) Conducts an independent review and assessment of Western
Systems Coordinating Council operating reliability criteria.
   (b) Quantifies the economic cost of major transmission outages
relating to the Pacific Intertie, Southwest Power Link, DC link, and
other important high voltage lines that carry power both into and
from California.
   (c) Identifies the range of cost-effective options that would
prevent or mitigate the consequence of major transmission outages.
   (d) Identifies communication protocols that may be needed to be
established to provides advance warning of incipient problems.
   (e) Identifies the need for additional generation reserves and
other voltage support equipment, if any, or other resources that may
be necessary to carry out its functions.
   (f) Identifies transmission capacity additions that may be
necessary at certain times of the year or under certain conditions.
   (g) Assesses the adequacy of current and prospective institutional
provisions for the maintenance of reliability.
   (h) Identifies mechanisms to enforce transmission right-of-way
maintenance.
   (i) Contains recommendations regarding cost-beneficial
improvements to electric system reliability for the citizens of
California.

      Article 4.  Power Exchange

   355.  The Power Exchange shall provide an efficient competitive
auction, open on a nondiscriminatory basis to all suppliers, that
meets the loads of all exchange customers at efficient prices.
   356.  The Power Exchange governing board may form appropriate
technical advisory committees comprised of market and nonmarket
participants to advise the governing board on relevant issues.

      Article 5.  Regional Compact

   359.  It is the intent of the Legislature that California enter
into a compact with western region states.  That compact should
require the publicly and investor-owned utilities located in those
states that sell energy to California retail customers, to adhere to
enforceable standards and protocols to protect the reliability of the
interconnected regional transmission and distribution systems.

      Article 6.  Requirements for the Public Utilities Commission

   360.  The commission shall ensure that existing, and if necessary,
additional filings at the Federal Energy Regulatory Commission
request confirmation of the relevant provisions of this chapter and
seek the authority needed to give the Independent System Operator the
ability to secure generating and transmission resources necessary to
guarantee achievement of planning and operating reserve criteria no
less stringent than those established by the Western Systems
Coordinating Council and the North American Electric Reliability
Council.
   361.  The commission shall ensure that any funds secured by the
restructuring trusts established for the purposes of developing the
Independent System Operator and the Power Exchange shall be placed at
the disposal of the Independent System Operator and the Power
Exchange respectively.
   362.  In proceedings pursuant to Section 455.5, 851, or 854, the
commission shall ensure that facilities needed to maintain the
reliability of the electric supply remain available and operational,
consistent with maintaining open competition and avoiding an
overconcentration of market power.  In order to determine whether the
facility needs to remain available and operational, the commission
shall utilize standards that are no less stringent that the Western
Systems Coordinating Council and North American Electric Reliability
Council standards for planning reserve criteria.
   363.  (a) In order to ensure the continued safe and reliable
operation of public utility electric generating facilities, the
commission shall require in any proceeding under Section 851
involving the sale, but not spin-off, of a public utility electric
generating facility, for transactions initiated prior to December 31,
2001, and approved by the commission by December 31, 2002, that the
selling utility contract with the purchaser of the facility for the
selling utility, an affiliate, or a successor corporation to operate
and maintain the facility for at least two years.  The commission may
require these conditions to be met for transactions initiated on or
after January 1, 2002.  The commission shall require the contracts to
be reasonable for both the seller and the buyer.
   (b) Subdivision (a) shall apply only if the facility is actually
operated during the two-year period following the sale.  Subdivision
(a) shall not require the purchaser to operate a facility, nor shall
it preclude a purchaser from temporarily closing the facility to make
capital improvements.
   364.  (a) The commission shall adopt inspection, maintenance,
repair, and replacement standards for the distribution systems of
investor-owned electric utilities no later than March 31, 1997.  The
standards, which shall be performance or prescriptive standards, or
both, as appropriate, for each substantial type of distribution
equipment or facility, shall provide for high quality, safe and
reliable service.
   (b) In setting its standards, the commission shall consider:
cost, local geography and weather, applicable codes, national
electric industry practices, sound engineering judgment, and
experience.  The commission shall also adopt standards for operation,
reliability, and safety during periods of emergency and disaster.
The commission shall require each utility to report annually on its
compliance with the standards.  That report shall be made available
to the public.
   (c) The commission shall conduct a review to determine whether the
standards prescribed in this section have been met.  If the
commission finds that the standards have not been met, the commission
may order appropriate sanctions, including penalties in the form of
rate reductions or monetary fines.  The
             review shall be performed after every major outage.  Any
money collected pursuant to this subdivision shall be used to offset
funding for the California Alternative Rates for Energy Program.
   365.  The actions of the commission pursuant to this chapter shall
be consistent with the findings and declarations contained in
Section 330.  In addition, the commission shall do all of the
following:
   (a) Facilitate the efforts of the state's electrical corporations
to develop and obtain authorization from the Federal Energy
Regulatory Commission for the creation and operation of an
Independent System Operator and an independent Power Exchange, for
the determination of which transmission and distribution facilities
are subject to the exclusive jurisdiction of the commission, and for
approval, to the extent necessary, of the cost recovery mechanism
established as provided in Sections 367 to 376, inclusive.  The
commission shall also participate fully in all proceedings before the
Federal Energy Regulatory Commission in connection with the
Independent System Operator and the independent Power Exchange, and
shall encourage the Federal Energy Regulatory Commission to adopt
protocols and procedures that strengthen the reliability of the
interconnected transmission grid, encourage all publicly owned
utilities in California to become full participants, and maximize
enforceability of such protocols and procedures by all market
participants.
   (b) (1) Authorize direct transactions between electricity
suppliers and end use customers, subject to implementation of the
nonbypassable charge referred to in Sections 367 to 376, inclusive.
Direct transactions shall commence simultaneously with the start of
an Independent System Operator and Power Exchange referred to in
subdivision (a).  The simultaneous commencement shall occur as soon
as practicable, but no later than January 1, 1998.  The commission
shall develop a phase-in schedule at the conclusion of which all
customers shall have the right to engage in direct transactions.  Any
phase-in of customer eligibility for direct transactions ordered by
the commission shall be equitable to all customer classes and
accomplished as soon as practicable, consistent with operational and
other technological considerations, and shall be completed for all
customers by January 1, 2002.
   (2) Customers shall be eligible for direct access irrespective of
any direct access phase-in implemented pursuant to this section if at
least one-half of that customer's electrical load is supplied by
energy from a renewable resource provider certified pursuant to
Section 383, provided however that nothing in this section shall
provide for direct access for electric consumers served by municipal
utilities unless so authorized by the governing board of that
municipal utility.
   366.  (a) The commission shall take actions as needed to
facilitate direct transactions between electricity suppliers and end
use customers.  Customers shall be entitled to aggregate their
electric loads on a voluntary basis, provided that each customer does
so by a positive written declaration.  If no positive declaration is
made by a customer, that customer shall continue to be served by the
existing electrical corporation or its successor in interest.
   (b) Aggregation of customer electrical load shall be authorized by
the commission for all customer classes, including, but not limited
to small commercial or residential customers.  Aggregation may be
accomplished by private market aggregators, cities, counties, special
districts or on any other basis made available by market
opportunities and agreeable by positive written declaration by
individual consumers.
   (c) If a public agency seeks to serve as a community aggregator on
behalf of residential customers, it shall be obligated to offer the
opportunity to purchase electricity to all residential customers
within its jurisdiction.
   (d) No electric utility, or any person, firm, corporation, or
governmental entity shall make any change or authorize a different
electric utility or electric marketer to make any change in the
aggregator or provider of electric power for any small commercial
customer until one of the following means of confirming the change
has been completed.
   (1) Independent third-party telephone verification.
   (2) Receipt of a written confirmation received in the mail from
the consumer after the consumer has received an information package
confirming the telephone agreement.
   (3) The customer signs a document fully explaining the nature and
effect of the change in service.
   (4) The customer's consent is obtained through electronic means,
including but not limited to, computer transactions.
   (e) For residential customers no change in the aggregator or
provider of electric power may be made until the change has been
confirmed by an independent third-party verification company, as
follows:
   (1) The third-party verification company shall meet each of the
following criteria:
   (A) Be independent from the entity that seeks to provide the new
service.
   (B) Not be directly or indirectly managed, controlled, or
directed, or owned wholly or in part, by an entity that seeks to
provide the new service or by any corporation, firm, or person who
directly or indirectly manages, controls, or directs, or owns more
than 5 percent of the entity.
   (C) Operate from facilities physically separate from those of the
entity that seeks to provide the new service.
   (D) Not derive commissions or compensation based upon the number
of sales confirmed.
   (2) The entity seeking to verify the sale shall do so by
connecting the resident by telephone to the third-party verification
company or by arranging for the third-party verification company to
call the resident to confirm the sale.
   (3) The third-party verification company shall obtain the resident'
s oral confirmation regarding the change, and shall record that
confirmation by obtaining appropriate verification data.  The record
shall be available to the resident upon request.  Information
obtained from the subscriber through confirmation shall not be used
for marketing purposes.  Any unauthorized release of this information
is grounds for a civil suit by the aggrieved resident against the
entity or its employees who are responsible for the violation.
   (4) Notwithstanding paragraphs (1), (2), and (3), a service
provider shall not be required to comply with these provisions when
the customer directly calls the service provider to make changes in
service providers.  However, a service provider shall not avoid the
verification requirements by asking a customer to contact a service
provider directly to make any change in the service provider.  A
service provider shall be required to comply with these verification
requirements for its own competitive services.  However, a service
provider shall not be required to perform any verification
requirements for any changes solicited by another service provider.
   367.  The commission shall identify and determine those costs and
categories of costs for generation-related assets and obligations,
consisting of generation facilities, generation-related regulatory
assets, nuclear settlements, and power purchase contracts, including,
but not limited to, restructurings, renegotiations or terminations
thereof approved by the commission, that were being collected in
commission-approved rates on December 20, 1995, and that may become
uneconomic as a result of a competitive generation market, in that
these costs may not be recoverable in market prices in a competitive
market, and appropriate costs incurred after December 20, 1995, for
capital additions to generating facilities existing as of December
20, 1995, that the commission determines are reasonable and should be
recovered, provided that these additions are necessary to maintain
the facilities through December 31, 2001.  These uneconomic costs
shall be recovered from all customers on a nonbypassable basis and
shall:
   (a) Be amortized over a reasonable time period, including
collection on an accelerated basis, consistent with not increasing
rates for any rate schedule, contract, or tariff option above the
levels in effect on June 10, 1996; provided that, the recovery shall
not extend beyond December 31, 2001, except as follows:
   (1) Costs associated with employee-related transition costs as set
forth in subdivision (b) of Section 375 shall continue until fully
collected; provided, however, that the cost collection shall not
extend beyond December 31, 2006.
   (2) Power purchase contract obligations shall continue for the
duration of the contract.  Costs associated with any buy-out,
buy-down, or renegotiation of the contracts shall continue to be
collected for the duration of any agreement governing the buy-out,
buy-down, or renegotiated contract; provided, however, no power
purchase contract shall be extended as a result of the buy-out,
buy-down, or renegotiation.
   (3) Costs associated with contracts approved by the commission to
settle issues associated with the Biennial Resource Plan Update may
be collected through March 31, 2002; provided that only 80 percent of
the balance of the costs remaining after December 31, 2001, shall be
eligible for recovery.
   (4) Nuclear incremental cost incentive plans for the San Onofre
nuclear generating station shall continue for the full term as
authorized by the commission in Decision 96-01-011 and Decision
96-04-059; provided that the recovery shall not extend beyond
December 31, 2003.
   (5) Costs associated with the exemptions provided in subdivision
(a) of Section 374 may be collected through March 31, 2002, provided
that only fifty million dollars ($50,000,000) of the balance of the
costs remaining after December 31, 2001, shall be eligible for
recovery.
   (b) Be based on a calculation mechanism that nets the negative
value of all above market utility-owned generation-related assets
against the positive value of all below market utility-owned
generation related assets.  For those assets subject to valuation,
the valuations used for the calculation of the uneconomic portion of
the net book value shall be determined not later than December 31,
2001, and shall be based on appraisal, sale, or other divestiture.
The commission's determination of the costs eligible for recovery and
of the valuation of those assets at the time the assets are exposed
to market risk or retired, in a proceeding under Section 455.5, 851,
or otherwise, shall be final, and notwithstanding Section 1708 or any
other provision of law, may not be rescinded, altered or amended.
   (c) Be limited in the case of utility-owned fossil generation to
the uneconomic portion of the net book value of the fossil capital
investment existing as of January 1, 1998, and appropriate costs
incurred after December 20, 1995, for capital additions to generating
facilities existing as of December 20, 1995, that the commission
determines are reasonable and should be recovered, provided that the
additions are necessary to maintain such facilities through December
31, 2001.  All "going forward costs" of fossil plant operation,
including operation and maintenance, administrative and general, fuel
and fuel transportation costs, shall be recovered solely from
independent Power Exchange Revenues or from contracts with the
Independent System Operator, provided that for the purposes of this
chapter, the following costs may be recoverable pursuant to this
section:
   (1) Commission-approved operating costs for particular
utility-owned fossil power plants or units, at particular times when
reactive power/voltage support is not yet procurable at market-based
rates in locations where it is deemed needed for the reactive
power/voltage support by the Independent System Operator, provided
that the units are otherwise authorized to recover market-based rates
and provided further that for an electrical corporation that is also
a gas corporation and that serves at least four million customers as
of December 20, 1995, the commission shall allow the electrical
corporation to retain any earnings from operations of the reactive
power/voltage support plants or units and shall not require the
utility to apply any portions to offset recovery of transition costs.
  Cost recovery under the cost recovery mechanism shall end on
December 31, 2001.
   (2) An electrical corporation that, as of December 20, 1995,
served at least four million customers, and that was also a gas
corporation that served less than four thousand customers, may
recover, pursuant to this section, 100 percent of the uneconomic
portion of the fixed costs paid under fuel and fuel transportation
contracts that were executed prior to December 20, 1995, and were
subsequently determined to be reasonable by the commission, or 100
percent of the buy-down or buy-out costs associated with the
contracts to the extent the costs are determined to be reasonable by
the commission.
   (d) Be adjusted throughout the period through March 31, 2002, to
track accrual and recovery of costs provided for in this subdivision.
  Recovery of costs prior to December 31, 2001, shall include a
return as provided for in Decision 95-12-063, as modified by Decision
96-01-009, together with associated taxes.
   (e) (1) Be allocated among the various classes of customers, rate
schedules, and tariff options to ensure that costs are recovered from
these classes, rate schedules, contract rates, and tariff options,
including self-generation deferral, interruptible, and standby rate
options in substantially the same proportion as similar costs are
recovered as of June 10, 1996, through the regulated retail rates of
the relevant electric utility, provided that there shall be a fire
wall segregating the recovery of the costs of competition transition
charge exemptions such that the costs of competition transition
charge exemptions granted to members of the combined class of
residential and small commercial customers shall be recovered only
from these customers, and the costs of competition transition charge
exemptions granted to members of the combined class of customers,
other than residential and small commercial customers, shall be
recovered only from these customers.
   (2) Individual customers shall not experience rate increases as a
result of the allocation of transition costs.  However, customers who
elect to purchase energy from suppliers other than the Power
Exchange through a direct transaction, may incur increases in the
total price they pay for electricity to the extent the price for the
energy exceeds the Power Exchange price.
   (3) The commission shall retain existing cost allocation
authority, provided the fire wall and rate freeze principles are not
violated.
   368.  Each electrical corporation shall propose a cost recovery
plan to the commission for the recovery of the uneconomic costs of an
electrical corporation's generation-related assets and obligations
identified in Section 367.  The commission shall authorize the
electrical corporation to recover the costs pursuant to the plan
where the plan meets the following criteria:
   (a) The cost recovery plan shall set rates for each customer
class, rate schedule, contract, or tariff option, at levels equal to
the level as shown on electric rate schedules as of June 10, 1996,
provided that rates for residential and small commercial customers
shall be reduced so that these customers shall receive rate
reductions of no less than 10 percent for 1998 continuing through
2002.  These rate levels for each customer class, rate schedule,
contract, or tariff option shall remain in effect until the earlier
of March 31, 2002, or the date on which the commission-authorized
costs for utility generation-related assets and obligations have been
fully recovered.  The electrical corporation shall be at risk for
those costs not recovered during that time period.  Each utility
shall amortize its total uneconomic costs, to the extent possible,
such that each year during the transition period its recorded rate of
return on the remaining uneconomic assets does not exceed its
authorized rate of return for those assets.  For purposes of
determining the extent to which the costs have been recovered, any
over-collections recorded in Energy Costs Adjustment Clause and
Electric Revenue Adjustment Mechanism balancing accounts, as of
December 31, 1996, shall be credited to the recovery of the costs.
   (b) The cost recovery plan shall provide for identification and
separation of individual rate components such as charges for energy,
transmission, distribution, public benefit programs, and recovery of
uneconomic costs.  The separation of rate components required by this
subdivision shall be used to ensure that customers of the electrical
corporation who become eligible to purchase electricity from
suppliers other than the electrical corporation pay the same
unbundled component charges, other than energy, a bundled service
customer pays.  No cost shifting among customer classes, rate
schedules, contract, or tariff options shall result from the
separation required by this paragraph.  Nothing in this provision is
intended to affect the rates, terms, and conditions or to limit the
use of any Federal Energy Regulatory Commission-approved contract
entered into by the electrical corporation prior to the effective
date of this provision.
   (c) In consideration of the risk that the uneconomic costs
identified in Section 367 may not be recoverable within the period
identified in subdivision (a) of Section 367, an electrical
corporation that, as of December 20, 1995, served more than four
million customers, and that was also a gas corporation that served
less than four thousand customers, shall have the flexibility to
employ risk management tools, such as forward hedges, to manage the
market price volatility associated with unexpected fluctuations in
natural gas prices and the out-of-pocket costs of acquiring the risk
management tools shall be considered reasonable and collectible
within the transition freeze period.  This subdivision applies only
to the transaction costs associated with the risk management tools
and shall not include any losses from changes in market prices.
   (d) In order to ensure implementation of the cost recovery plan,
the limitation on the maximum amount of cost recovery for nuclear
facilities that may be collected in any year adopted by the
commission in Decision 96-01-011 and Decision 96-04-059 shall be
eliminated to allow the maximum opportunity to collect the nuclear
costs within the transition cap period.
   (e) As to an electrical corporation that is also a gas corporation
serving more than four million California customers, so long as any
cost recovery plan adopted in accordance with this section satisfies
subdivision (a), it shall also provide for annual increases in base
revenues, effective January 1, 1997, and January 1, 1998, equal to
the inflation rate for the prior year plus two percentage points, as
measured by the consumer price index.  The increase shall do both of
the following:
   (1) Remain in effect pending the next general rate case review,
which shall be filed not later than December 31, 1997, for rates
which would become effective in January 1999.  For purposes of any
commission-approved performance-based ratemaking mechanism or general
rate case review, the increases in base revenue authorized by this
subdivision shall create no presumption that the level of base
revenue reflecting those increases constitute the appropriate
starting point for subsequent revenues.
   (2) Be used by the utility for the purposes of enhancing its
transmission and distribution system safety and reliability,
including, but not limited to, vegetation management and emergency
response.  To the extent the revenues are not expended for system
safety and reliability, they shall be credited against subsequent
safety and reliability base revenue requirements.  Any excess
revenues carried over shall not be used to pay any monetary sanctions
imposed by the commission.
   (f) The cost recovery plan shall provide the electrical
corporation with the flexibility to manage the renegotiation,
buy-out, or buy-down of the electrical corporation's power purchase
obligations, consistent with review by the commission to assure that
the terms provide net benefits to ratepayers and are otherwise
reasonable in protecting the interests of both ratepayers and
shareholders.
   (h) An example of a plan authorized by this section is the
document entitled "Restructuring Rate Settlement" transmitted to the
commission by Pacific Gas and Electric Company on June 12, 1996.
   369.  The commission shall establish an effective mechanism that
ensures recovery of transition costs referred to in Sections 367,
368, 375, and 376, and subject to the conditions in Sections 371 to
374, inclusive, from all existing and future consumers in the service
territory in which the utility provided electricity services as of
December 20, 1995; provided, that the costs shall not be recoverable
for new customer load or incremental load of an existing customer
where the load is being met through a direct transaction and the
transaction does not otherwise require the use of transmission or
distribution facilities owned by the utility.  However, the
obligation to pay the competition transition charges cannot be
avoided by the formation of a local publicly owned electrical
corporation on or after December 20, 1995, or by annexation of any
portion of an electrical corporation's service area by an existing
local publicly owned electric utility.
   This section shall not apply to service taken under tariffs,
contracts, or rate schedules that are on file, accepted, or approved
by the Federal Energy Regulatory Commission, unless otherwise
authorized by the Federal Energy Regulatory Commission.
   370.  The commission shall require, as a prerequisite for any
consumer in California to engage in direct transactions permitted in
Section 365, that beginning with the commencement of these direct
transactions, the consumer shall have an obligation to pay the costs
provided in Sections 367, 368, 375, and 376, and subject to the
conditions in Sections 371 to 374, inclusive, directly to the
electrical corporation providing electricity service in the area in
which the consumer is located.  This obligation shall be set forth in
the applicable rate schedule, contract, or tariff option under which
the customer is receiving service from the electrical corporation.
To the extent the consumer does not use the electrical corporation's
facilities for direct transaction, the obligation to pay shall be
confirmed in writing, and the customer shall be advised by any
electricity marketer engaged in the transaction of the requirement
that the customer execute a confirmation.  The requirement for
marketers to inform customers of the written requirement shall cease
on January 1, 2002.
   371.  (a) Except as provided in Sections 372 and 374, the
uneconomic costs provided in Sections 367, 368, 375, and 376 shall be
applied to each customer based on the amount of electricity
purchased by the customer from an electrical corporation or alternate
supplier of electricity, subject to changes in usage
                              occurring in the normal course of
business.
   (b) Changes in usage occurring in the normal course of business
are those resulting from changes in business cycles, termination of
operations, departure from the utility service territory, weather,
reduced production, modifications to production equipment or
operations, changes in production or manufacturing processes, fuel
switching, including installation of fuel cells pending a contrary
determination by the California Energy Resources Conservation and
Development Commission in Section 383, enhancement or increased
efficiency of equipment or performance of existing self-cogeneration
equipment, replacement of existing cogeneration equipment with new
power generation equipment of similar size as described in paragraph
(1) of subdivision (a) of Section 372, installation of demand-side
management equipment or facilities, energy conservation efforts, or
other similar factors.
   (c) Nothing in this section shall be interpreted to exempt or
alter the obligation of a customer to comply with the requirements of
Section 119075 et seq. of the Health and Safety Code.  Nothing in
this section shall be construed as a limitation on the ability of
residential customers to alter their pattern of electricity purchases
by activities on the customer side of the meter.
   372.  (a) It is the policy of the state to encourage and support
the development of cogeneration as an efficient, environmentally
beneficial, competitive energy resource that will enhance the
reliability of local generation supply, and promote local business
growth.  Subject to the specific conditions provided in this section,
the commission shall determine the applicability to customers of
uneconomic costs as specified in Sections 367, 368, 375, and 376.
Consistent with this state policy, the commission shall provide that
these costs shall not apply to any of the following:
   (1) To load served onsite or under an over the fence arrangement
by a nonmobile self-cogeneration or cogeneration facility that was
operational on or before December 20, 1995, or by increases in the
capacity of such a facility to the extent that such increased
capacity was constructed by an entity holding an ownership interest
in or operating the facility and does not exceed 120 percent of the
installed capacity as of December 20, 1995, provided that prior to
June 30, 2000, the costs shall apply to over the fence arrangements
entered into after December 20, 1995, between unaffiliated parties.
For the purposes of this subdivision, "affiliated" means any person
or entity that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common on
control with another specified entity.  "Control" means either of the
following:
   (A) The possession, directly or indirectly, of the power to direct
or to cause the direction of the management or policies of a person
or entity, whether through an ownership, beneficial, contractual, or
equitable interest.
   (B) Direct or indirect ownership of at least 25 percent of an
entity, whether through an ownership, beneficial or equitable
interest.
   (2) To load served by onsite or under an over the fence
arrangement by a nonmobile self-cogeneration or cogeneration facility
for which the customer was committed to construction as of December
20, 1995, provided that the facility was substantially operational on
or before January 1, 1998, or by increases in the capacity of such a
facility to the extent that the increased capacity was constructed
by an entity holding an ownership interest in or operating the
facility and does not exceed 120 percent of the installed capacity as
of January 1, 1998, provided that prior to June 30, 2000, the costs
shall apply to over the fence arrangements entered into after
December 20, 1995, between unaffiliated parties.
   (3) To load served by existing, new, or portable emergency
generation equipment used to serve the customer's load requirements
during periods when utility service is unavailable, provided such
emergency generation is not operated in parallel with the integrated
electric grid, except on a momentary parallel basis.
   (4) After June 30, 2000, to any load served onsite or under an
over the fence arrangement by any nonmobile self-cogeneration or
cogeneration facility.
   (b) Further, consistent with state policy, with respect to
self-cogeneration or cogeneration deferral agreements, the commission
shall do the following:
   (1) Provide that a utility shall execute a final self-cogeneration
or cogeneration deferral agreement with any customer that, on or
before December 20, 1995, had executed a letter of intent (or similar
documentation) to enter into the agreement with the utility,
provided that the final agreement shall be consistent with the terms
and conditions set forth in the letter of intent and the commission
shall review and approve the final agreement.
   (2) Provide that a customer that holds a self-cogeneration or
cogeneration deferral agreement that was in place on or before
December 20, 1995, or that was executed pursuant to paragraph (1) in
the event the agreement expires, or is terminated, may do any of the
following:
   (A) Continue through December 31, 2001, to receive utility service
at the rate and under terms and conditions applicable to the
customer under the deferral agreement that, as executed, includes an
allocation of uneconomic costs consistent with subdivision (e) of
Section 367.
   (B) Engage in a direct transaction for the purchase of electricity
and pay uneconomic costs consistent with Sections 367, 368, 375, and
376.
   (C) Construct a self-cogeneration or cogeneration facility of
approximately the same capacity as the facility previously deferred,
provided that the costs provided in Sections 367, 368, 375, and 376
shall apply consistent with subdivision (e) of Section 367, unless
otherwise authorized by the commission pursuant to subdivision (c).
   (3) Subject to the fire wall described in subdivision (e) of
Section 367 provide that the ratemaking treatment for
self-cogeneration or cogeneration deferral agreements executed prior
to December 20, 1995, or executed pursuant to paragraph (1) shall be
consistent with the ratemaking treatment for the contracts approved
before January 1995.
   (c) The commission shall authorize, within 60 days of the receipt
of a joint application from the serving utility and one or more
interested parties, applicability conditions as follows:
   (1) The costs identified in Sections 367, 368, 375, and 376 shall
not, prior to June 30, 2000, apply to load served onsite by a
nonmobile self-cogeneration or cogeneration facility that became
operational on or after December 20, 1995.
   (2) The costs identified in Sections 367, 368, 375, and 376 shall
not, prior to June 30, 2000, apply to any load served under over the
fence arrangements entered into after December 20, 1995, between
unaffiliated entities.
   (d) For the purposes of this subdivision, all onsite or over the
fence arrangements shall be consistent with Section 218 as it existed
on December 20, 1995.
   (e) To facilitate the development of new microcogeneration
applications, electrical corporations may apply to the commission for
a financing order to finance the transition costs to be recovered
from customers employing the applications.
   373.  (a) Electrical corporations may apply to the commission for
an order determining that the costs identified in Sections 367, 368,
375, and 376 not be collected from a particular class of customer or
category of electricity consumption.
   (b) Subject to the fire wall specified in subdivision (e) of
Section 367, the provisions of this section and Sections 372 and 374
shall apply in the event the commission authorizes a nonbypassable
charge prior to the implementation of an Independent System Operator
and Power Exchange referred to in subdivision (a) of Section 365.
   374.  (a) In recognition of statutory authority and past
investments existing as of December 20, 1995, and subject to the fire
wall specified subdivision (e) of Section 367, the obligation to pay
the uneconomic costs identified in Sections 367, 368, 375, and 376
shall not apply to the following:
   (1) One hundred ten megawatts of load served by irrigation
districts, as hereafter allocated by this paragraph:
   (A) The 110 megawatts of load shall be allocated among the service
territories of the three largest electrical corporations in the
ratio of the number of irrigation districts in the service territory
of each utility to the total number of irrigation districts in the
service territories of all three utilities.
   (B) The total amount of load allocated to each utility service
area shall be phased in over five years beginning January 1, 1997, so
that one-fifth of the allocation is allocated in each of the five
years.  Any allocation which remains unused at the end of any year
shall be carried over to the succeeding year and added to the
allocation for that year.
   (C) The load allocated to each utility service territory pursuant
to subparagraph (A) shall be further allocated among the respective
irrigation districts within that service territory by the California
Energy Resources Conservation and Development Commission.  An
individual irrigation district requesting such an allocation shall
submit to the commission by January 31, 1997, detailed plans that
show the load that it serves or will serve and for which it intends
to utilize the allocation within the time frame requested.  These
plans shall include specific information on the irrigation districts'
organization for electric distribution, contracts, financing and
engineering plans for capital facilities, as well as detailed
information about the loads to be served, and shall not be less than
eight megawatts or more than 40 megawatts.  Provided, however, any
portion of the 110 megawatts that remains unallocated may be
reallocated to projects without regard to the 40 megawatts
limitation.  In making such an allocation among irrigation districts,
the Energy Resources Conservation and Development Commission shall
assess the viability of each submission and whether it can be
accomplished in the timeframe proposed.  The Energy Resources
Conservation and Development Commission shall have the discretion to
allocate the load covered by this section in a manner that best
ensures its usage within the allocation period.
   (D) At least 50 percent of each year's allocation to a district
shall be applied to that portion of load that is used to power pumps
for agricultural purposes.
   (E) Any load pursuant to this subdivision shall be served by
distribution facilities owned by, or leased to, the district in
question.
   (F) Any load allocated pursuant to paragraph (1) shall be located
within the boundaries of the affected irrigation district, or within
the boundaries specified in an applicable service territory boundary
agreement between an electrical corporation and the affected
irrigation district; additionally, the provisions of subparagraph (C)
of paragraph (1) shall be applicable to any load within the Counties
of Stanislaus or San Joaquin, or both, served by any irrigation
district that is currently serving or will be serving retail
customers.
   (2) Seventy-five megawatts of load served by the Merced Irrigation
District hereafter prescribed in this paragraph:
   (A) The total allocation provided by this paragraph shall be
phased in over five years beginning January 1, 1997, so that
one-fifth of the allocation is received in each of the five years.
Any allocation which remains unused at the end of any year shall be
carried over to the succeeding year and added to the allocation for
that year.
   (B) Any load to which the provision of this paragraph is
applicable shall be served by distribution facilities owned by, or
leased to, Merced Irrigation District.
   (C) A load to which the provisions of this paragraph are
applicable shall be located within the boundaries of Merced
Irrigation District as those boundaries existed on December 20, 1995,
together with the territory of Castle Air Force Base which was
located outside of the district on that date.
   (D) The total allocation provided by this paragraph shall be
phased in over five years beginning January 1, 1997, with the
exception of load already being served by the district as of June 1,
1996, which shall be deducted from the total allocation and shall not
be subject to the costs provided in Sections 367, 368, 375, and 376.

   (3) To loads served by irrigation districts, water districts,
water storage districts, municipal utility districts, and other water
agencies which, on December 20, 1995, were members of the Southern
San Joaquin Valley Power Authority, or the Eastside Power Authority;
provided, however, that this paragraph shall be applicable only to
that portion of each district or agency's load that is used to power
pumps which are owned by that district or agency as of December 20,
1995, or replacements thereof, and is being used to pump water for
district purposes.  The rates applicable to these districts and
agencies shall be adjusted as of January 1, 1997.
   (4) The provisions of this subdivision shall no longer be
operative after March 31, 2002.
   (5) The provisions of paragraph (1) shall not be applicable to any
irrigation district, water district or water agency described in
paragraph (2) or (3).
   (6) Transmission services provided to any irrigation district
described in paragraph (1) or (2) shall be provided pursuant to
otherwise applicable tariffs.
   (7) Nothing in this chapter shall be deemed to grant the
commission any jurisdiction over irrigation districts not already
granted to the commission by existing law.
   (b) To give the full effect to the legislative intent in enacting
Section 701.8, the costs provided in Sections 367, 368, 375, and 376
shall not apply to the load served by preference power purchased from
a federal power marketing agency, or its successor, pursuant to
Section 701.8 as it existed on January 1, 1996, provided the power is
used solely for the customer's own systems load and not for sale.
The costs of this provision shall be borne by all ratepayers in the
affected service territory, notwithstanding the fire wall established
in subdivision (e) of Section 367.
   (c) To give effect to an existing relationship, the obligation to
pay the uneconomic costs specified in Sections 367, 368, 375, and 376
shall not apply to that portion of the load of the University of
California campus situated in Yolo County that was being served as of
May 31, 1996, by preference power purchased from a federal marketing
agency, or its successor, provided the power is used solely for the
facility load of that campus and not, directly or indirectly, for
sale.
   375.  (a) In order to mitigate potential negative impacts on
utility personnel directly affected by electric industry
restructuring, as described in Decision 95-12-063, as modified by
Decision 96-01-009, the commission shall allow the recovery of
reasonable employee related transition costs incurred and projected
for severance, retraining, early retirement, outplacement and related
expenses for the employees.
   (b) The costs, including employee related transition costs for
employees performing services in connection with Section 363, shall
be added to the amount of uneconomic costs allowed to be recovered
pursuant to this section and Sections 367, 368, and 376, provided
recovery of these employee related transition costs shall extend
beyond December 31, 2001, provided recovery of the costs shall not
extend beyond December 31, 2006.  However, there shall be no recovery
for employee related transition costs associated with officers,
senior supervisory employees, and professional employees performing
predominantly regulatory functions.
   376.  To the extent that the costs of programs to accommodate
implementation of direct access, the Power Exchange, and the
Independent System Operator, that have been funded by an electrical
corporation and have been found by the commission or the Federal
Energy Regulatory Commission to be recoverable from the utility's
customers, reduce an electrical corporation's opportunity to recover
its utility generation-related plant and regulatory assets by the end
of the year 2001, the electrical corporation may recover unrecovered
utility generation-related plant and regulatory assets after
December 31, 2001, in an amount equal to the utility's cost of
commission-approved or Federal Energy Regulatory Commission approved
restructuring-related implementation programs.  An electrical
corporation's ability to collect the amounts from retail customers
after the year 2001 shall be reduced to the extent the Independent
System Operator or the Power Exchange reimburses the electrical
corporation for the costs of any of these programs.
   377.  The commission shall continue to regulate the nonnuclear
generation assets owned by any public utility prior to January 1,
1997, that are subject to commission regulation until those assets
have been subject to market valuation in accordance with procedures
established by the commission. If, after market valuation, the public
utility wishes to retain ownership of nonnuclear generation assets
in the same corporation as the distribution utility, the public
utility shall demonstrate to the satisfaction of the commission,
through a public hearing, that it would be consistent with the public
interest and would not confer undue competitive advantage on the
public utility to retain that ownership in the same corporation as
the distribution utility.
   378.  The commission shall authorize new optional rate schedules
and tariffs, including new service offerings, that accurately reflect
the loads, locations, conditions of service, cost of service, and
market opportunities of customer classes and subclasses.
   379.  Nuclear decommissioning costs shall not be part of the costs
described in Sections 367, 368, 375, and 376, but shall be recovered
as a nonbypassable charge until the time as the costs are fully
recovered.  Recovery of decommissioning costs may be accelerated to
the extent possible.

      Article 7.  Research, Environmental, and Low-Income Funds

   381.  (a) To ensure that the funding for the programs described in
subdivision (b) and Section 382 are not commingled with other
revenues, the commission shall require each electrical corporation to
identify a separate rate component to collect the revenues used to
fund these programs.  The rate component shall be a nonbypassable
element of the local distribution service and collected on the basis
of usage.  This rate component shall fall within the rate levels
identified in subdivision (a) of Section 368.
   (b) The commission shall allocate funds collected pursuant to
subdivision (a), and any interest earned on collected funds, to
programs which enhance system reliability and provide in-state
benefits as follows:
   (1) Cost-effective energy efficiency and conservation activities.

   (2) Public interest research and development not adequately
provided by competitive and regulated markets.
   (3) In-state operation and development of existing and new and
emerging renewable resource technologies defined as electricity
produced from other than a conventional power source within the
meaning of Section 2805, provided that a power source utilizing more
than 25 percent fossil fuel may not be included.
   (c) The Public Utilities Commission shall order the respective
electrical corporations to collect and spend these funds, as follows:

   (1) Cost-effective energy efficiency and conservation activities
shall be funded at not less than the following levels commencing
January 1, 1998, through December 31, 2001:  for San Diego Gas and
Electric Company a level of thirty-two million dollars ($32,000,000)
per year; for Southern California Edison Company a level of ninety
million dollars ($90,000,000) for each of the years l998, 1999, and
2000; fifty million dollars ($50,000,000) for the year 2001; and for
Pacific Gas and Electric Company a level of one hundred six million
dollars ($106,000,000) per year.
   (2) Research, development, and demonstration programs to advance
science or technology that are not adequately provided by competitive
and regulated markets shall be funded at not less than the following
levels commencing January 1, 1998 through December 31, 2001:  for
San Diego Gas and Electric Company a level of four million dollars
($4,000,000) per year; for Southern California Edison Company a level
of twenty-eight million five hundred thousand dollars ($28,500,000)
per year; and for Pacific Gas and Electric Company a level of thirty
million dollars ($30,000,000) per year.
   (3) In-state operation and development of existing and new and
emerging renewable resource technologies shall be funded at not less
than the following levels on a statewide basis:  one hundred nine
million five hundred thousand dollars ($109,500,000) per year for
each of the years 1998, 1999, and 2000, and one hundred thirty-six
million five hundred thousand dollars ($136,500,000) for the year
2001.  To accomplish these funding levels over the period described
herein the San Diego Gas and Electric Company shall spend twelve
million dollars ($12,000,000) per year, the Southern California
Edison Company shall expend no less than forty-nine million five
hundred thousand dollars ($49,500,000) for the years 1998, 1999, and
2000, and no less than seventy-six million five hundred thousand
dollars ($76,500,000) for the year 2001, and the Pacific Gas and
Electric Company shall expend no less than forty-eight million
dollars ($48,000,000) per year through the year 2001.  Additional
funding not to exceed seventy-five million dollars ($75,000,000)
shall be allocated from moneys collected pursuant to subdivision (d)
in order to provide a level of funding totaling five hundred forty
million dollars ($540,000,000).
   (4) Up to fifty million dollars ($50,000,000) of the amount
collected pursuant to subdivision (d) may be used to resolve
outstanding issues related to implementation of subdivision (a) of
Section 374.  Moneys remaining after fully funding the provisions of
this paragraph shall be reallocated for purposes of paragraph (3).
   (5) Up to ninety million dollars ($90,000,000) of the amount
collected pursuant to subdivision (d) may be used to resolve
outstanding issues related to contractual arrangements in the
Southern California Edison service territory stemming from the
Biennial Resource Planning Update auction.  Moneys remaining after
fully funding the provisions of this paragraph shall be reallocated
for purposes of paragraph (3).
   (d) Notwithstanding any other provisions of this chapter, entities
subject to the jurisdiction of the Public Utilities Commission shall
extend the period for competition transition charge collection up to
three months beyond its otherwise applicable termination of December
31, 2001, so as to ensure that the aggregate portion of the
research, environmental, and low-income funds allocated to renewable
resources shall equal five hundred forty million dollars
($540,000,000) and that the costs
      specified in paragraphs (3), (4), and (5) of subdivision (c)
are collected.
   (e) Each electrical corporation shall allow customers to make
voluntary contributions through their utility bill payments as either
a fixed amount or a variable amount to support programs established
pursuant to paragraph (3) of subdivision (b).  Funds collected by
electrical corporations for these purposes shall be forwarded in a
timely manner to the appropriate fund as specified by the commission.

   (f) The commission shall determine how to utilize funds for
purposes of paragraphs (1) and (2) of subdivision (b), provided that
only those research and development funds for transmission and
distribution functions shall remain with the regulated public
utilities under the supervision of the commission. The commission
shall provide for the transfer of all research and development funds
collected for purposes of paragraph (2) of subdivision (b) other than
those for transmission and distribution functions and funds
collected for purposes of paragraph (3) of subdivision (b) to the
California Energy Resources Conservation and Development Commission
pursuant to administration and expenditure criteria to be established
by the Legislature.
   (g) The commission's authority to collect funds pursuant to this
section for purposes of paragraph (3) of subdivision (b) shall become
inoperative on March 31, 2002.
   (h) For purposes of this article, "emerging renewable technology"
means a new renewable technology, including, but not limited to,
photovoltaic technology, that is determined by the California Energy
Resources Conservation and Development Commission to be emerging from
research and development and that has significant commercial
potential.
   382.  Programs provided to low-income electricity customers,
including, but not limited to, targeted energy-efficiency services
and the California Alternative Rates for Energy Program shall be
funded at not less than 1996 authorized levels based on an assessment
of customer need.  The commission shall allocate funds necessary to
meet the low-income objectives in this section.
   383.  (a) Moneys collected pursuant to paragraph (3) of
subdivision (b) of Section 381 shall be transferred to a subaccount
of the Energy Resources Programs Account of the California Energy
Resources Conservation and Development Commission to be held until
further action by the Legislature for purposes of:
   (1) Supporting the operation of existing and the development of
new and emerging in-state renewable resource technologies.
   (2) Supporting the operations of existing renewable resource
generation facilities which provide fire suppression benefits, reduce
materials going into landfills, and mitigate the amount of
open-field burning of agricultural waste.
   (3) Supporting the operations of existing, innovative solar
thermal technologies that provide essential peak generation and
related reliability benefits.
   (b) The California Energy Resources Conservation and Development
Commission shall review the purposes described in this section and
report to the Legislature by March 31, 1997, with recommendations
regarding market-based mechanisms to allocate available funds.  The
programs should be based on market principles and include options and
implementation mechanisms which:
   (1) Reward the most cost-effective generation meeting the purposes
of subdivision (a) through mechanisms such as the establishment of a
clearinghouse or a marketing agent to identify the most competitive
renewable resource providers while fostering a market for renewable
resources.
   (2) Implement a process for certifying eligible renewable resource
providers.
   (3) Allow customers to receive a rebate from the fund through
mechanisms such as a reduction in their electricity bill or a direct
payment from the fund for the transition charges that would otherwise
apply to their purchases from renewable resource providers.
   (4) Allocate moneys between (A) new and emerging and (B) existing
renewable resource technology providers, provided that no less than
40 percent of the funds shall be allocated to either category.
   (5) Utilize financing and other mechanisms to maximize the
effectiveness of available funds.
   (c) The report described in this section shall also include
consideration of:
   (1) The need for mechanisms to ensure that cogeneration facilities
that utilize energy from environmental pollution in its process, or
microcogeneration facilities with a total generating capacity of less
than one megawatt remain competitive in the electric services
market.
   (2) Whether fuel cells should be treated as fuel switching for
purposes of application of the competition transition charge as
specified in Section 371.

      Article 8.  Publicly Owned Utilities

   385.  (a) Each local publicly owned electric utility shall
establish a nonbypassable, usage based charge on local distribution
service of not less than the lowest expenditure level of the three
largest electrical corporations in California on a percent of revenue
basis, calculated from each utility's total revenue requirement for
the year ended December 31, 1994, and each utility's total annual
expenditure under paragraphs (1), (2), and (3) of subdivision (c) of
Section 381 and Section 382, to fund investments by the utility and
other parties in any or all of the following:
   (1) Cost-effective demand-side management services to promote
energy-efficiency and energy conservation.
   (2) New investment in renewable energy resources and technologies
consistent with existing statutes and regulations which promote those
resources and technologies.
   (3) Research, development and demonstration programs for the
public interest to advance science or technology which is not
adequately provided by competitive and regulated markets.
   (4) Services provided for low-income electricity customer,
including but not limited to, targeted energy efficiency service and
rate discounts.

      Article 9.  State Agencies

   388.  (a) Notwithstanding any other provision of law, any state
agency may enter into an energy savings contract with a qualified
energy service company for the purchase or exchange of thermal or
electrical energy or water, or to acquire energy efficiency and/or
water conservation services, for a term not exceeding 35 years, at
those rates and upon those terms that are approved by the agency.
   (b) The Department of General Services or any other state or local
agency intending to enter into an energy savings contract may
establish a pool of qualified energy service companies based on
qualifications, experience, pricing or other pertinent factors.
Energy service contracts for individual projects undertaken by any
state or local agency may be awarded through a competitive selection
process to individuals or firms identified in such a pool.  The pool
of qualified energy service companies and contractors shall be
reestablished at least every two years or shall expire.
   (c) For purposes of this section, the following definitions apply:

   (1) "Energy savings" means a measured and verified reduction in
fuel, energy or water consumption when compared to an established
baseline of consumption.
   (2) "Qualified energy service company" means a company with a
demonstrated ability to provide or arrange for building or facility
energy auditors, selection and design of appropriate energy savings
measures, project financing, implementation of these measures, and
maintenance and ongoing measurement of these measures as to ensure
and verify energy savings.
   389.  The Secretary of the California Environmental Protection
Agency, in consultation with interested stakeholders including
relevant state and federal agencies, boards, and commissions, shall
evaluate and recommend to the Legislature public policy strategies
that address the feasibility of shifting costs from electric utility
ratepayers, in whole or in part, to other classes of beneficiaries.
This evaluation also shall address the quantification of benefits
attributable to the solid-fuel biomass industry and implementation
requirements, including statutory amendments and transition period
issues that may be relevant, to bring about equitable and effective
allocation of solid-fuel biomass electricity costs that ensure the
retention of the economic and environmental benefits of the biomass
industry while promoting measurable reduction in real costs to
ratepayers.  This evaluation shall be in coordination with the
California Energy Resources Conservation and Development Commission's
efforts pursuant to subdivision (b) of Section 383, addressing
renewable policy implementation issues. The Secretary shall submit a
final report to the Legislature, using existing agency resources,
prior to March 31, 1997.

      Article 10.  Nonutility Power Generators

   390.  (a) Subject to applicable contractual terms, energy prices
paid to nonutility power generators by a public utility electrical
corporation based upon the commission's prescribed "short run avoided
cost energy methodology" shall be determined as set forth in
subdivisions (b) and (c).
   (b) Until the requirements of subdivision (c) have been satisfied,
short run avoided cost energy payments paid to nonutility power
generators by an electrical corporation shall be based on a formula
that reflects a starting energy price, adjusted monthly to reflect
changes in a starting gas index price in relation to an average of
current California natural gas border price indices.  The starting
energy price shall be based on 12-month averages of recent,
pre-January 1, 1996, short-run avoided energy prices paid by each
public utility electrical corporation to nonutility power generators.
  The starting gas index price shall be established as an average of
index gas prices for the same annual periods.
   (c) The short-run avoided cost energy payments paid to nonutility
power generators by electrical corporations shall be based on the
clearing price paid by the independent Power Exchange if (1) the
commission has issued an order determining that the independent Power
Exchange is functioning properly for the purposes of determining the
short-run avoided cost energy payments to be made to nonutility
power generators, and either (2) the fossil-fired generation units
owned, directly or indirectly, by the public utility electrical
corporation are authorized to charge market-based rates and the
"going forward" costs of those units are being recovered solely
through the clearing prices paid by the independent Power Exchange or
from contracts with the Independent System Operator, whether those
contracts are market-based or based on operating costs for particular
utility-owned powerplant units and at particular times when reactive
power/voltage support is not yet procurable at market-based rates at
locations where it is needed, and are not being recovered directly
or indirectly through any other source, or (3) the public utility
electrical corporation has divested 90 percent of its gas-fired
generation facilities that were operated to meet load in 1994 and
1995. However, nonutility power generators subject to this section
may, upon appropriate notice to the public utility electrical
corporation, exercise a one-time option to elect to thereafter
receive energy payments based upon the clearing price from the
independent Power Exchange.
   (d) If a nonutility power generator is being paid short-run
avoided costs energy payments by an electrical corporation by a firm
capacity contract, a forecast as-available capacity contract, or a
forecast as-delivered capacity contract on the basis of the clearing
price paid by the independent Power Exchange as described in
subdivision (c) above, the value of capacity in the clearing price,
if any, shall not be paid to the nonutility power generator.  The
value of capacity in the clearing price, if any, equals the
difference between the market clearing customer demand bid at the
level of generation dispatched by the independent Power Exchange and
the highest supplier bid dispatched.
   (e) Short-run avoided energy cost payments made pursuant to this
section are in addition to contractually specified capacity payments.
  Nothing in this section shall be construed to affect, modify or
amend the terms and conditions of existing nonutility power
generators' contracts with respect to the sale of energy or capacity
or otherwise.
   (f) Nothing in this section shall be construed to limit the level
of transition cost recovery provided to utilities under electric
industry restructuring policies established by the commission.
   (g) The term "going forward costs" shall include, but not be
limited to, all costs associated with fuel transportation and fuel
supply, administrative and general, and operation and maintenance;
provided that, for purposes of this section, the following shall not
be considered "going forward costs":  (1) commission-approved capital
costs for capital additions to fossil-fueled powerplants, provided
that such additions are necessary for the continued operation of the
powerplants utilized to meet load and such additions are not
undertaken primarily to expand, repower or enhance the efficiency of
plant operations; or, (2) commission-approved operating costs for
particular utility-owned powerplant units and at particular times
when reactive power/voltage support is not yet procurable at
market-based rates in locations where it is needed, provided that the
recovery shall end on December 31, 2001.

      Article 11.  Information Practices

   392.  (a) The restructuring of the electricity industry will
create a new electricity market with new marketers and sellers
offering new goods and services, many of which may not be readily
evaluated by the average consumer.
   (b) It is the intent of the Legislature that (1) electricity
consumers be provided with sufficient and reliable information to be
able to compare and select among products and services provided in
the electricity market, and (2) consumers be provided with mechanisms
to protect themselves from marketing practices that are unfair or
abusive.
   (c) (1) Electrical corporations shall disclose each component of
the electrical bill as follows:
   (A) The total charges associated with transmission and
distribution, including that portion comprising the research,
environmental, and low-income funds.
   (B) The total charges associated with generation, including the
competition transition charge.
   (2) Electrical corporations shall provide conspicuous notice that
if the customer elects to purchase electricity from another provider
that the customer will continue to be liable for payment of the
competition transition charge.  This paragraph does not limit the
commission from requiring additional information.
   (d) Prior to the implementation of the competition transition
charge, electric corporations, in conjunction with the commission,
shall devise and implement a customer education program informing
customers of the changes to the electric industry.  The program shall
provide customers with information necessary to help them make
appropriate choices as to their electric service. The education
program shall be subject to approval by the commission.

      Article 12.  Consumer Protection

   394.  (a) Except for an electrical corporation as defined in
Section 218, each entity offering electrical service to residential
and small commercial customers within the service territory of an
electrical corporation shall register with the commission.  The
registration shall include the following seller information:
   (1) Legal name.
   (2) Current telephone number.
   (3) Current address.
   (4) Agent for service of process.
   (b) Except for an electrical corporation as defined in Section
218, each entity offering electrical service to residential and small
commercial customers with the service territory of an electrical
corporation shall, at the time of the offering, provide the potential
customer with a written notice describing the price, terms, and
conditions of the service, an explanation of the applicability and
amount of the competition transition charge, as determined pursuant
to Sections 367 to 375, inclusive, and a notice describing the
potential customer's right to rescind the contract.  The commission
shall assist these entities in developing the notice.  The commission
may suggest inclusion of additional information that would be useful
to the customer.
   (c) The commission shall accept, compile, and help resolve
consumer complaints regarding entities offering electrical service
that are required to be registered pursuant to this section.
   395.  (a) In addition to any other right to revoke an offer,
residential and small commercial customers of electrical service, as
defined in subdivision (h) of Section 331, have the right to cancel a
contract for electric service until midnight of the third business
day after the day on which the buyer signs an agreement or offer to
purchase.
   (b) Cancellation occurs when the buyer gives written notice of
cancellation to the seller at the address specified in the agreement
or offer.
   (c) Notice of cancellation, if given by mail, is effective when
deposited in the mail properly addressed with postage prepaid.
   (d) Notice of cancellation given by the buyer need not take the
particular form as provided with the contract or offer to purchase
and, however expressed, is effective if it indicates the intention of
the buyer not to be bound by the contract.
   396.  (a) A consumer damaged by a violation of this article by an
entity offering electrical service is entitled to recover all of the
following:
   (1) Actual damages.
   (2) The consumer's reasonable attorney's fees and court costs.
   (3) Exemplary damages, in the amount the court deems proper, for
intentional or willful violations.
   (4) Equitable relief as the court deems proper.
   (b) The rights, remedies, and penalties established by this
article are in addition to the rights, remedies, or penalties
established under any other law.
   (c) Nothing in this article shall abrogate any authority of the
Attorney General to enforce existing law.
   (d) This article shall remain in effect only until January 1,
2002, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2002, deletes or extends
that date.

      Article 13.  Fuel Price Volatility

   397.  (a) Notwithstanding subdivision (a) of Section 368, to
ensure the continued safe and reliable provision of electric service
during the transition to competition, and to limit the effect of fuel
price volatility in electric rates paid by California consumers, it
is in the public interest to allow an electrical corporation which is
also a gas corporation and served fewer than four million customers
as of December 20, 1995, to file with the commission a rate cap
mechanism which shall include a Fuel Price Index Mechanism requiring
limited adjustments in an electrical corporation's authorized System
Average Rate in effect on June 10, 1996, to reflect price changes in
the fuel market.  The commission shall authorize an electrical
corporation to implement a rate cap mechanism which includes a Fuel
Price Index Mechanism provided the following criteria are met:
   (1) The Fuel Price Index Mechanism shall be based on the Southern
California Border Index price for natural gas as published
periodically in Natural Gas Intelligence Magazine.  The "Starting
Point" of the Fuel Price Index Mechanism shall be defined as the
California Border Index price as published in Natural Gas
Intelligence for January 1, 1996.
   (2) The Fuel Price Index Mechanism shall include a "deadband"
defined as a price range for natural gas that is any price up to 10
percent higher, or lower, than the Starting Point.
   (3) The electrical corporation shall not file for a change in its
authorized System Average Rate unless the California Border Index
price, on a 12-month, rolling average basis, is outside the deadband.
  If the published California Border Index is outside of the
deadband, the electrical corporation shall increase, or decrease, its
authorized System Average Rate by an amount equal to the product of
25 percent multiplied by the percentage by which the 12-month rolling
average natural gas price is higher, or lower, than the deadband.
   (4) In no case shall an electrical corporation's authorized System
Average Rate under the Fuel Price Index Mechanism exceed the average
of the authorized system average rates for the two largest
electrical corporations as of June 10, 1996.
   (5) This section shall become inoperative on December 31, 2001.
 
  SEC. 11.  Article 5.5 (commencing with Section 840) is added to
Chapter 4 of Part 1 of Division 1 of the Public Utilities Code, to
read:

      Article 5.5.  Financing of Transition Costs

   840.  For the purposes of this article, the following terms shall
have the following meanings:
   (a) "Bank" means the California Infrastructure and Economic
Development Bank.
   (b) "Financing entity" means the bank, any special purpose trust,
as defined in Section 63101 of the Government Code, that is
authorized by the bank to issue rate reduction bonds and acquire
transition property, or any other entity authorized by the bank to
issue rate reduction bonds and acquire transition property.  The bank
may authorize another entity to issue rate reduction bonds only if
all of the following conditions are met:
   (1) The bank by resolution has determined that allowing another
entity to issue rate reduction bonds would produce greater overall
ratepayer savings, taking into account all relevant considerations
including, but not limited to, the exclusion of interest on rate
reduction bonds issued by the bank from investors' gross income for
California or federal income tax purposes, or both, earnings on funds
collected and held by the electrical corporation prior to deposit in
a fund or account for the benefit of holders of rate reduction
bonds, and all costs of issuance and other transaction costs.
   (2) The bank submits to the Joint Legislative Budget Committee a
certified copy of the bank's resolution, together with a report
setting forth the basis for the bank's determination that a financing
entity other than the bank or a special purpose trust will produce
greater ratepayer savings and at least 30 days have elapsed from the
date of submission.
   (c) "Financing order" shall mean 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 transition amounts
included therein to ensure recovery of all transition costs and the
costs of capital associated with the proposed provision, recovery,
financing, or refinancing thereof, including the costs of issuing,
servicing, and retiring the rate reduction bonds contemplated by the
financing order.  These adjustments shall not impose fixed transition
amounts upon classes of customers who were not subject to the fixed
transition amounts in the pertinent financing order.

           (d) "Fixed transition amounts" 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 (1)
transition costs, and (2) the costs of providing, recovering,
financing, or refinancing the transition costs through a plan
approved by the commission in the financing order, including the
costs of issuing, servicing, and retiring rate reduction bonds.  If
requested by the electrical corporation in its application for a
financing order, fixed transition amounts shall include nonbypassable
rates and other charges to recover federal and state taxes whose
recovery period is modified by the transactions approved in the
financing order.
   (e) "Rate reduction 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 to provide, recover, finance, or refinance transition costs and
to acquire transition property and that are secured by or payable
from transition property.
   (f) "Transition costs" means the costs, and categories of costs,
of an electrical corporation for generation-related assets and
obligations, consisting of generation facilities, generation-related
regulatory assets, nuclear settlements, and power purchase contracts,
including, but not limited to, voluntary restructuring,
renegotiations, or terminations thereof approved by the commission,
that were being collected in commission-approved rates on December
20, 1995, and that may become uneconomic as a result of a competitive
generation market in that those costs may not be recoverable in
market prices in a competitive market, and appropriate costs incurred
after December 20, 1995, for capital additions to generating
facilities existing as of December 20, 1995, that the commission
determines are reasonable and should be recovered, provided that
these costs are necessary to maintain the facilities through December
31, 2001.  Transition costs shall also include the costs of
refinancing or retiring of debt or equity capital of the electrical
corporation, and associated federal and state tax liabilities.
   (g) "Transition property" means the property right created
pursuant to this article including, without limitation, the right,
title, and interest of an electrical corporation or a financing
entity to all revenues, collections, claims, payments, money, or
proceeds of or arising from or constituting fixed transition amounts
that are the subject of a financing order, including those
nonbypassable rates and other charges referred to in subdivision (b)
that are authorized by the commission in the financing order to
recover transition costs and the costs of providing, recovering,
financing, or refinancing the transition costs, including the costs
of issuing, servicing, and retiring rate reduction bonds.
   841.  (a) An electrical corporation shall, by June 1, 1997, and
may from time to time thereafter apply to the commission for a
determination that certain transition costs may be recovered through
fixed transition amounts, which would therefore constitute transition
property under this article.  An electrical corporation may request
this determination by the commission in separate proceedings or in an
order instituting investigation or order instituting rulemaking, or
both.  The electrical corporation shall in its application specify
that the residential and small commercial customers as defined in
subdivision (h) of Section 331 would benefit from reduced rates
through the issuance of rate reduction bonds.  The commission shall
designate fixed transition amounts as recoverable in one or more
financing orders if the commission determines, as part of its
findings in connection with the financing order, that the designation
of the fixed transition amounts, and issuance of rate reduction
bonds in connection with some or all of the fixed transition amounts
would reduce rates that residential and small commercial customers
would have paid if the financing order were not adopted.  These
customers shall continue to pay fixed transition amounts after
December 31, 2001, until the bonds are paid in full by the financing
entity.  No electrical corporation shall be found to have acted
inprudently or unreasonably for failing to amend a power purchase
contract where the amendment would modify or waive an existing
requirement that the seller be a qualifying facility pursuant to
federal law.
   (b) The commission may issue financing orders in accordance with
this article to facilitate the provision, recovery, financing, or
refinancing of transition costs.  A financing order may be adopted
only upon the application of an 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 customer shall be allocated between fixed transition amounts
and other charges.
   (c) Notwithstanding Section 455.5, Section 1708, or any other
provision of law, except as otherwise provided in this subdivision
with respect to transition property that has been made the basis for
the issuance of rate reduction bonds, the financing orders and the
fixed transition amounts shall be irrevocable and the commission
shall not have authority either by rescinding, altering, or amending
the financing order or otherwise, to revalue or revise for ratemaking
purposes the transition costs, or the costs of providing,
recovering, financing, or refinancing the transition costs, determine
that the fixed transition amounts or rates are unjust or
unreasonable, or in any way reduce or impair the value of transition
property either directly or indirectly by taking fixed transition
amounts into account when setting other rates for the electrical
corporation; nor shall the amount of revenues arising with respect
thereto be subject to reduction, impairment, postponement, or
termination.  Except as otherwise provided in this subdivision, the
State of California does hereby pledge and agree with the owners of
transition property and holders of rate reduction bonds that the
state shall neither limit nor alter the fixed transition amounts,
transition property, financing orders, and all rights thereunder
until the obligations, together with the interest thereon, are fully
met and discharged, provided 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 owners and holders.
The bank as agent for the state is authorized to include this pledge
and undertaking for the state in these obligations.  Notwithstanding
any other provision of this section, the commission shall approve the
adjustments to the fixed transition amounts as may be necessary to
ensure timely recovery of all transition costs that are the subject
of the pertinent financing order, and the costs of capital associated
with the provision, recovery, financing, or refinancing thereof,
including the costs of issuing, servicing, and retiring the rate
reduction bonds contemplated by the financing order.  The adjustments
shall not impose fixed transition amounts upon classes of customers
who were not subject to the fixed transition amounts in the pertinent
financing order.
   (d) (1) Financing orders issued under this article do not
constitute a debt or liability of the state or of any political
subdivision thereof, other than the financing entity, and do not
constitute a pledge of the full faith and credit of the state or any
of its political subdivisions, other than the financing entity, 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.  This subdivision shall in no way
preclude bond guarantees or enhancements pursuant to this article.
All the 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 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.  Nothing in
this section shall prevent, or construed to prevent, the financing
entity from pledging the full faith and credit of the infrastructure
bank fund to the payment of bonds or issuance of bonds authorized
pursuant to this article.
   (e) The commission shall establish procedures for the expeditious
processing of applications for financing orders, including the
approval or disapproval thereof within 120 days of the electrical
corporation's making application therefor.  The commission shall
provide in any financing order for a procedure for the expeditious
approval by the commission of periodic adjustments to the fixed
transition amounts that are the subject of the pertinent financing
order, as required by subdivision (c).  The procedure shall require
the commission to determine whether the adjustments are required on
each anniversary of the issuance of the financing order, and at the
additional intervals as may be provided for in the financing order,
and for the adjustments, if required, to be approved within 90 days
of each anniversary of the issuance of the financing order, or of
each additional interval provided for in the financing order.
   (f) Fixed transition amounts shall constitute transition property
when, and to the extent that, a financing order authorizing the fixed
transition amounts has become effective in accordance with this
article, and the transition property shall thereafter continuously
exist as property for all purposes with all of the rights and
privileges of this article for the period and to the extent provided
in the financing order, but in any event until the transition bonds
are paid in full, including all principal, interest, premium, costs,
and arrearages thereon.
   (g) Any surplus fixed transition amounts in excess of the amounts
necessary to pay principal, premium, if any, interest and expenses of
the issuance of the rate reduction bonds shall be remitted to the
financing entity and may be used to benefit residential and small
commercial customers if this would not result in a recharacterization
of the tax, accounting, and other intended characteristics of the
financing, including, but not limited to, the following:
   (1) Avoiding the recognition of debt on the electrical corporation'
s balance sheet for financial accounting and regulatory purposes.
   (2) Treating the rate reduction bonds as debt of the electrical
corporation or its affiliates for federal income tax purposes.
   (3) Treating the transfer of the transition property by the
electrical corporation as a true sale for bankruptcy purposes.
   (4) Avoiding any adverse impact of the financing on the electrical
corporation's credit rating.
   842.  (a) Financing entities may issue rate reduction bonds upon
approval by the commission in the pertinent financing orders.  Rate
reduction bonds shall be nonrecourse to the credit or any assets of
the electrical corporation, other than the transition property as
specified in the pertinent financing order.
   (b) Electrical corporations may sell and assign all or portions of
their interest in transition property to an affiliate.  Electrical
corporations or their affiliates may sell or assign their interests
to one or more financing entities that make that property the basis
for issuance of rate reduction bonds to the extent approved in the
pertinent financing orders.  Electrical corporations, their
affiliates, or financing entities may pledge transition property as
collateral for rate reduction bonds to the extent approved in the
pertinent financing orders providing for a security interest in the
transition property, in the manner as set forth in Section 843.  In
addition transition property may be sold or assigned by (1) the
financing entity or a trustee for the holders of rate reduction bonds
in connection with the exercise of remedies upon a default, or (2)
any person acquiring the transition property after a sale or
assignment pursuant to this subdivision.
   (c) To the extent that any interest in transition property is so
sold or assigned, or is so pledged as collateral, the commission
shall authorize the electrical corporation to contract with the
financing entity that it will continue to operate its system to
provide service to its customers, will collect amounts in respect of
the fixed transition amounts for the benefit and account of the
financing entity, and will account for and remit these amounts to or
for the account of the financing entity.  Contracting with the
financing entity in accordance with that authorization shall not
impair or negate the characterization of the sale, assignment, or
pledge as an absolute transfer, a true sale, or security interest, as
applicable.
   (d) Notwithstanding Section 1708 or any other provision of law,
any requirement under this article or a financing order that the
commission take action with respect to the subject matter of a
financing order shall be binding upon the commission, as it may be
constituted from time to time, and any successor agency exercising
functions similar to the commission and the commission shall have no
authority to rescind, alter, or amend that requirement in a financing
order.  The approval by the commission in a financing order of the
issuance by an electrical corporation or a financing entity of rate
reduction bonds shall include the approvals, if any, as may be
required by Article 5 (commencing with Section 816) and Section
701.5.  Nothing in Section 701.5 shall be construed to prohibit the
issuance of rate reduction bonds upon the terms and conditions as may
be approved by the commission in a financing order.  Section 851
shall not be applicable to the transfer or pledge of transition
property, the issuance of rate reduction bonds, or related
transactions approved in a financing order.
   843.  (a) A security interest in transition property is valid, is
enforceable against the pledgor and third parties, subject to the
rights of any third parties holding security interests in the
transition property perfected in the manner described in this
section, and attaches when all of the following have taken place:
   (1) The commission has issued the financing order authorizing the
bondable transition amounts included in the transition property.
   (2) Value has been given by the pledgees of the transition
property.
   (3) The pledgor has signed a security agreement covering the
transition property.
   (b) A valid and enforceable security interest in transition
property is perfected when it has attached and when a financing
statement has been filed in accordance with Chapter 4 (commencing
with Section 9401) of Division 9 of the Commercial Code naming the
pledgor of the transition property as "debtor" and identifying the
transition property.  Any description of the transition property
shall be sufficient if it refers to the financing order creating the
transition property.  A copy of the financing statement shall be
filed with the commission by the electrical corporation that is the
pledgor or transferor of the transition property, and the commission
may require the electrical corporation to make other filings with
respect to the security interest in accordance with procedures it may
establish, provided that the filings shall not affect the perfection
of the security interest.
   (c) A perfected security interest in transition property is a
continuously perfected security interest in all revenues and proceeds
arising with respect thereto, whether or not the revenues or
proceeds have accrued.  Conflicting security interests shall rank
according to priority in time of perfection.  Transition property
shall constitute property for all purposes, including for contracts
securing rate reduction bonds, whether or not the revenues and
proceeds arising with respect thereto have accrued.
   (d) Subject to the terms of the security agreement covering the
transition property and the rights of any third parties holding
security interests in the transition property perfected in the manner
described in this section, the validity and relative priority of a
security interest created under this section is not defeated or
adversely affected by the commingling of revenues arising with
respect to the transition property with other funds of the electrical
corporation that is the pledgor or transferor of the transition
property, or by any security interest in a deposit account of that
electrical corporation perfected under Division 9 (commencing with
Section 9101) of the Commercial Code into which the revenues are
deposited.  Subject to the terms of the security agreement, upon
compliance with the requirements of subdivision (g) of Section 9302
of the Commercial Code, the pledgees of the transition property shall
have a perfected security interest in all cash and deposit accounts
of the electrical corporation in which revenues arising with respect
to the transition property have been commingled with other funds, but
the perfected security interest shall be limited to an amount not
greater than the amount of the revenues with respect to the
transition property received by the electrical corporation within 12
months before (1) any default under the security agreement or (2) the
institution of insolvency proceedings by or against the electrical
corporation, less payments from the revenues to the pledgees during
that 12-month period.
   (e) If an event of default occurs under the security agreement
covering the transition property, the pledgees of the transition
property, subject to the terms of the security agreement, shall have
all rights and remedies of a secured party upon default under
Division 9 (commencing with Section 9101) of the Commercial Code, and
shall be entitled to foreclose or otherwise enforce their security
interest in the transition property, subject to the rights of any
third parties holding prior security interests in the transition
property perfected in the manner provided in this section.  In
addition, the commission may require, in the financing order creating
the transition property, that, in the event of default by the
electrical corporation in payment of revenues arising with respect to
the transition property, the commission and any successor thereto,
upon the application by the pledgees or transferees, including
transferees under Section 844, of the transition property, and
without limiting any other remedies available to the pledgees or
transferees by reason of the default, shall order the sequestration
and payment to the pledgees or transferees of revenues arising with
respect to the transition property.  Any order shall remain in full
force and effect notwithstanding any bankruptcy, reorganization, or
other insolvency proceedings with respect to the debtor, pledgor, or
transferor of the transition property.  Any surplus in excess of
amounts necessary to pay principal, premium, if any, interest, costs,
and arrearages on the rate reduction bonds, and other costs arising
under the security agreement, shall be remitted to the debtor or to
the pledgor or transferor.
   (f) Section 5451 of the Government Code shall not apply to any
pledge of transition property by a financing entity.
   844.  (a) A transfer of transition property by an electrical
corporation to an affiliate or to a financing entity, or by an
affiliate of an electrical corporation or a financing entity to
another financing entity, which the parties have in the governing
documentation expressly stated to be a sale or other absolute
transfer, in a transaction approved in a financing order, shall be
treated as an absolute transfer of all of the transferor's right,
title, and interest (as in a true sale), and not as a pledge or other
financing, of the transition property, other than for federal and
state income and franchise tax purposes.  Granting to holders of rate
reduction bonds a preferred right to revenues of the electrical
corporation, or the provision by the company of other credit
enhancement with respect to rate reduction bonds, shall not impair or
negate the characterization of any transfer as a true sale, other
than for federal and state income and franchise tax purposes.
   (b) A transfer of transition property shall be deemed perfected as
against third persons when both of the following have taken place:
   (1) The commission has issued the financing order authorizing the
fixed transition amounts included in the transition property.
   (2) An assignment of the transition property in writing has been
executed and delivered to the transferee.
   (c) As between bona fide assignees of the same right for value
without notice, the assignee first filing a financing statement in
accordance with Chapter 4 (commencing with Section 9401) of Division
9 of the Commercial Code naming the assignor of the transition
property as debtor and identifying the transition property has
priority.  Any description of the transition property shall be
sufficient if it refers to the financing order creating the
transition property.  A copy of the financing statement shall be
filed by the assignee with the commission, and the commission may
require the assignor or the assignee to make other filings with
respect to the transfer in accordance with procedures it may
establish, but these filings shall not affect the perfection of the
transfer.
   845.  Any successor to the electrical corporation, whether
pursuant to any bankruptcy, reorganization, or other insolvency
proceeding, or pursuant to any merger, sale, or transfer, by
operation of law, or otherwise, shall perform and satisfy all
obligations of the electrical corporation pursuant to this article in
the same manner and to the same extent as the electrical
corporation, including, but not limited to, collecting and paying to
the holders of rate reduction bonds or their representatives or the
applicable financing entity revenues arising with respect to the
transition property sold to the applicable financing entity or
pledged to secure rate reduction bonds.
   846.  The authority of the commission to issue financing orders
pursuant to Section 841 shall expire on December 31, 2015.  The
expiration of the authority shall have no effect upon financing
orders adopted by the commission pursuant to this article or any
transition property arising therefrom, or upon the charges authorized
to be levied thereunder, or the rights, interests, and obligations
of the electrical corporation or a financing entity or holders of
transition bonds pursuant to the financing order, or the authority of
the commission to monitor, supervise, or take further action
                                       with respect to the order in
accordance with the terms of this article and of the order.
   847.  Regulations adopted to implement this article shall not be
subject to the Administrative Procedure Act (Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2 of the
Government Code).
  SEC. 12.  Division 4.9 (commencing with Section 9600) is added to
the Public Utilities Code, to read:

      DIVISION 4.9.  RESTRUCTURING OF PUBLICLY OWNED ELECTRIC
UTILITIES IN CONNECTION WITH THE RESTRUCTURING OF THE ELECTRICAL
SERVICES INDUSTRY

   9600.  (a) It is the intent of the Legislature that California's
local publicly owned electric utilities and electric corporations
should commit control of their transmission facilities to the
Independent System Operator as described in Chapter 2.3 (commencing
with Section 330) of Part 1 of Division 1.  These utilities should
jointly advocate to the Federal Energy Regulatory Commission a
pricing methodology for the Independent System Operator that results
in an equitable return on capital investment in transmission
facilities for all Independent System Operator participants and is
based on the following principles:
   (1) Utility specific access charge rates as proposed in Docket No.
  EC96-19-000 as finally approved by the Federal Energy Regulatory
Commission reflecting the costs of that utility's transmission
facilities shall go into effect on the first day of the Independent
System Operator operation.  The utility specific rates shall honor
all of the terms and conditions of existing transmission service
contracts and shall recognize any wheeling revenues of existing
transmission service arrangements to the transmission owner.
   (2) (A) No later than two years after the initial operation of the
Independent System Operator, the Independent System Operator shall
recommend for adoption by the Federal Energy Regulatory Commission a
rate methodology determined by a decision of the Independent System
Operator governing board, provided that the decision shall be based
on principles approved by the governing board including, but not
limited to, an equitable balance of costs and benefits, and shall
define the transmission facility costs, if any, which shall be rolled
in to the transmission service rate and spread equally among all
Independent System Operator transmission users, and those
transmission facility costs, if any, which should be specifically
assigned to a specific utility's service area.
   (B) If there is no governing board decision, the rate methodology
shall be determined following a decision by the alternative dispute
resolution method set forth in the Independent System Operator
bylaws.
   (C) If no alternative dispute resolution decision is rendered,
then a default rate methodology shall be a uniform regional
transmission access charge and a utility specific local transmission
access charge, provided that the default rate methodology shall be
recommended for implementation upon termination of the cost recovery
plan set forth in Section 368 or no later than two years after the
initial operation of the Independent System Operator, whichever is
later.  For purposes of this paragraph, regional transmission
facilities are defined to be transmission facilities operating at or
above 230 kilovolts plus an appropriate percentage of transmission
facilities operating below 230 kilovolts; all other transmission
facilities shall be considered local.  The appropriate percentage of
transmission facilities described above shall be consistent with the
guidelines in Federal Energy Regulatory Commission Order No. 888 and
any exception approved by that commission.
   (3) If the rate methodology implemented as a result of a decision
by the Independent System Operator governing board or resulting from
the independent system operator alternative dispute resolution
process results in rates different than those in effect prior to the
decision for any transmission facility owner, the amount of any
differences between the new rates and the prior rates shall be
recorded in a tracking account to be recovered from customers and
paid to the appropriate transmission owners by the transmission
facility owner after termination of the cost recovery plan set forth
in Section 368.  The recovery and payments shall be based on an
amortization period not to exceed three years in the case of the
electrical corporations or five years in the case of the local
publicly owned electric utilities.
   (4) The costs of transmission facilities placed in service after
the date of initial implementation of the Independent System Operator
shall be recovered using the rate methodology in effect at the time
the facilities go into operation.
   (5) The electrical corporations and the local publicly owned
electric utilities shall jointly develop language for implementation
proposals to the Federal Energy Regulatory Commission based on these
principles.
   (6) Nothing in this section shall compel any party to violate
restrictions applicable to facilities financed with tax-exempt bonds
or contractual restrictions and covenants regarding use of
transmission facilities existing as of December 20, 1995.
   (b) Following a final Federal Energy Regulatory Commission
decision approving the Independent System Operator, no California
electrical corporation or local publicly owned electric utility shall
be authorized to collect any competition transition charge
authorized pursuant to this division and Chapter 2.3 (commencing with
Section 330) of Part 1 of Division 1 unless it commits control of
its transmission facilities to the Independent System Operator.
   9601.  (a) Except with respect to supply options of the nature
specified in Section 218, with the exception of paragraph (3) of
subdivision (b) of that section, as it existed on December 20, 1995,
no person, corporation, electrical corporation, or local publicly
owned electric utility or other governmental entity other than a
retail customer's existing electric service provider as of December
20, 1995, shall provide partial or full electric service to a retail
customer of a local publicly owned electric utility unless the
customer first confirms in writing an obligation to pay, through
tariff or otherwise, to the utility currently providing electric
service, a nonbypassable generation-related severance fee or
transition charge established by the regulatory body for that
utility.  The severance fee or transition charge shall be paid
directly to the local publicly owned utility providing electricity
service in the service area in which the consumer is located.
   (b) Except as provided in subdivision (a) of Section 374, no local
publicly owned electric utility or other governmental entity shall
provide partial or full electric service to a retail customer of an
electrical corporation unless the customer of that electrical
corporation first confirms in writing an obligation to pay, through
tariff or otherwise, to the electrical corporation currently
providing electric service, a nonbypassable generation-related
transition charge established by the regulatory body for that
electrical corporation.  The charge shall be paid directly to the
electrical corporation providing electricity in the service area in
which the consumer is located.
   (c) No local publicly owned electric utility or electrical
corporation shall sell electric power to the retail customers of
another local publicly owned electric utility or electrical
corporation unless the first utility has agreed to let the second
utility make sales of electric power to the retail customers of the
first utility.
   9602.  (a) After a public hearing, the local regulatory body of
each local publicly owned electric utility shall determine whether it
will authorize direct transactions between electricity suppliers and
end use customers, subject to implementation of the nonbypassable
severance fee or transition charge referred to in Section 9603.
   (b) If the regulatory body authorizes direct transactions, a
phase-in of these transactions shall commence no later than the
latter of January 1, 2000, or two years after the start of the
phase-in of direct transactions by the electrical corporations
pursuant to subdivision (b) of Section 365, and shall be completed by
the later of December 31, 2010, or two years after the completion of
the phase-in by electrical corporations.
   (c) The regulatory body shall develop a phase-in schedule at the
conclusion of which all customers shall have the right to engage in
direct transactions.
   (d) Any phase-in of customer eligibility for direct transactions
ordered by the regulatory body shall be equitable to all customer
classes.
   (e) If the regulatory body does not authorize direct access as
contemplated in this section, then the publicly owned electric
utility shall not be eligible to recover the nonbypassable charge as
provided in Section 9603.
   9603.  (a) Not less than six months prior to the date of
implementation of direct transactions, the regulatory body shall
establish the nonbypassable generation-related severance fee or
transition charge which shall include, but shall not be limited to,
employee related transition costs incurred and projected for
severance, out placement, retraining, early retirement, and related
expenses for employees directly affected by restructuring.
   (b) The regulatory body of a local publicly owned electric
utility, prior to adopting any generation related severance fee or
transition charge, shall make available for public review the basis
for the severance fee or transition charge and shall hold at least
one public hearing.
   9604.  For purposes of this division, the following definitions
apply:
   (a) "Direct transaction" means a contract between one or more
electric generators, marketers, or brokers, public or private, of
electric power and one or more retail customers providing for the
purchase and sale of electric power and ancillary services.
   (b) "Service area" means an area in which, as of December 20,
1995, an investor-owned electric utility or a local publicly owned
electric utility was obligated to provide service.
   (c) "Severance fee" or "transition charge" for a local publicly
owned electric utility shall mean that charge or periodic charge
assessed to customers to recover the reasonable uneconomic portion of
costs associated with generation-related assets and obligations,
nuclear decommissioning, and capitalized energy efficiency investment
programs approved prior to August 15, 1996.
   (d) "Local publicly owned electric utility" as used in this
division means a municipality or municipal corporation operating as a
"public utility" furnishing electric service as provided in Section
10001, a municipal utility district furnishing electric service
formed pursuant to Division 6 (commencing with Section 11501), a
public utility district furnishing electric services formed pursuant
to the Public Utility District Act set forth in Division 7
(commencing with Section 15501), an irrigation district furnishing
electric services formed pursuant to the Irrigation District Law set
forth in Division 11 (commencing with Section 20500) of the Water
Code, or a joint powers authority that includes one or more of these
agencies and that owns generation or transmission facilities, or
furnishes electric services over its own or its member's electric
distribution system.
   9605.  (a) Nothing in this division or Chapter 2.3 (commencing
with Section 350) of Part 1 of Division 1 shall affect preexisting
ratemaking authority of a regulatory body of any local publicly owned
electric utility.
   (b) Nothing in this division shall modify or abrogate any
agreement, or any rights or obligations in any such agreement,
between retail electric service providers relating to service areas.

   (c) Nothing in this division shall limit or affect the statutory
rights of a local publicly owned electric utility to negotiate and
design rates for existing customers and new customers not choosing to
be served by an alternate supplier.
   (d) Nothing in this division shall limit electric supply options
within the service territory of a local publicly owned electric
utility to the extent the options are of the nature specified in
Section 218 as it existed on December 20, 1995, with the exception of
paragraph (3) of subdivision (b) of that section, and the imposition
of a severance fee or transition charge on customers electing those
options shall be prohibited whether the elections are made before or
after the availability of direct transactions within the service area
of the local publicly owned electric utility.
   9606.  All city-owned electric utilities shall report on the
periodic bill the amount expected to be transferred to the general
fund of the city on a no less than annual basis.
  SEC. 13.  Section 9.5 of this bill incorporates amendments to
Section 216 of the Public Utilities Code proposed by both this bill
and AB 2501.  It shall only become operative if (1) both bills are
enacted and become effective on or before January 1, 1997, (2) each
bill amends Section 216 of the Public Utilities Code, and (3) this
bill is enacted after AB 2501, in which case Section 9 of this bill
shall not become operative.
  SEC. 14.  The provisions of this act are severable.  If any
provision of this act or its application is held invalid, that
invalidity shall not affect other provisions or applications that can
be given effect without the invalid provision or application.
  SEC. 15.  No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB of the California Constitution because of
costs that may be incurred by a local agency or school district will
be incurred because this act creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a crime
or infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.
   Notwithstanding Section 17580 of the Government Code, unless
otherwise specified, the provisions of this act shall become
operative on the same date that the act takes effect pursuant to the
California Constitution.
   No reimbursement is required by this act pursuant to Section 6 of
Article XIIIB of the California Constitution because of the other
costs that may be incurred by a local agency or school district are
the result of a program for which legislative authority was requested
by that local agency or school district, within the meaning of
Section 17556 of the Government Code and Section 6 of Article XIIIB
of the California Constitution.
  SEC. 16.  This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect.  The facts constituting the necessity are:
   In order to provide for meaningful participation in hearings
before the Federal Energy Regulatory Commission and to provide for
the safety and reliability of electrical services to Californians at
the earliest possible time, it is necessary for this act to take
effect immediately.   restructure the electric utility
industry now regulated by the State of California into a more
competitive and efficient system that will bring lower electrical
rates to all consumers at the earliest possible time, and simplify
the regulation of the industry, while preserving system safety,
reliability, and environmental protection.  In pursuit of these
reforms, it is the intent of the Legislature that the following
policy issues shall be addressed as a part of the restructuring
process:
   (a) The future structure of the generation of electricity,
including all of the following:
   (1) The design of the new model for providing increased
competition in the generation of electricity, specifically
addressing, but not limited to, issues such as whether the model
should be one of direct access with voluntary, market driven power
pools, a system of mandatory power pools regulated by the state and
federal government, or a system of community level access to
generation, and how the transition to the new model will be
implemented.
   (2) Market power, antitrust and divestiture of generation assets
irrespective of what model is adopted.
   (3) How generation services would be regulated, if at all, and how
consumers will be protected.
   (b) Transition cost calculation, including but not limited to:
   (1) Definition of transition costs to be considered.
   (2) Methodology for determining value of noneconomic and economic
assets.
   (3) An appropriate sharing of costs.
   (4) The amortization period for recovery of costs.
   (5) The cost recovery mechanism.
   (c) Future structure of the transmission and distribution system,
including all of the following:
   (1) Access to the transmission and distribution system based on
the generation or market model policy issues addressed pursuant to
subdivision (a).
   (2) The role of the independent system or grid operator in
assuring smooth, efficient, and reliable system operation.
   (3) The nature of the future role of regulation of these
continuing monopoly functions to ensure that cost-effectiveness,
safety, and reliability are maximized in the future with appropriate
regulation.
   (d) State policy issues, including all of the following:
   (1) The future of all state-mandated policies that are related to
electrical energy and the manner in which they will be continued as a
part of a restructured electrical industry, including programs
dealing with low-income customers, renewable and fuel diversity
acquisition, demand side management, electrical energy research and
development, biomass energy production, low- or zero-emission
vehicles, minority, women, disabled, and veteran business
enterprises, and economic development.
   (2) The manner in which the costs of the programs to be continued
will be recovered.
   (e) Financial integrity and viability of the investor-owned
utilities that is inherent in any electric industry restructuring.
   (f) State and federal jurisdictional issues, including both of the
following:
   (1) A cognizance of current and proposed federal law and
regulations regarding interstate transmission of electricity and
other issues.
   (2) Changes in state policy to be coordinated with federal
government policy to minimize, to the extent possible, jurisdictional
problems.
  SEC. 2.  This act shall become operative only if Assembly Bill 3153
of the 1995-96 Regular Session is enacted. 
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