AB 745 makes two concrete changes to California utility policy. First, it requires the annual California Climate Credit for residential customers to appear on bills in July, August, and September and to be delivered as a volumetric credit tied to consumption.
Second, it creates a statutory framework (Article 6.5) that lets the California Public Utilities Commission authorize issuance of “recovery bonds” to finance approved costs of undergrounding utility infrastructure and recover those costs through fixed, nonbypassable charges on customer bills.
The bill matters because it alters both customer-facing billing practices and the state’s approach to paying for major grid hardening. Moving to a volumetric, seasonal climate credit changes how bill relief interacts with conservation; authorizing securitized, nonbypassable fixed charges creates a permanent property right—“recovery property”—that can be sold or pledged to pay off bonds, shifts financial risk and timing away from utilities, and constrains future regulatory discretion over those charges.
At a Glance
What It Does
AB 745 amends the Public Utilities Code to (1) require residential California Climate Credits to be billed in July–September and delivered volumetrically, and (2) add Article 6.5 authorizing the PUC, on application, to issue financing orders that let utilities securitize approved undergrounding costs and recover them via fixed, nonbypassable charges.
Who It Affects
Residential electric customers (through the altered climate credit), electrical corporations that undertake undergrounding projects, the California Public Utilities Commission (as issuer and monitor of financing orders), bond investors and financing entities, and third parties that handle billing and collections.
Why It Matters
The bill changes the nexus between customer bills, conservation incentives, and utility cost recovery. It creates a legal structure for securitizing undergrounding costs—accelerating access to capital but creating long‑lived, nonbypassable charges and a new class of recovery property that limits later regulatory adjustments.
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What This Bill Actually Does
On climate credits, the bill modifies existing Section 748.5 so that residential customers receive their climate credit as a volumetric line-item on bills during the summer months (July, August, September) unless the commission directs otherwise for unusual circumstances. ‘‘Volumetric’’ means the credit varies with consumption rather than being a flat per-account amount independent of usage. The change affects how relief flows to customers and will require utilities to alter billing calculations and outreach.
The larger addition is Article 6.5 (Sections 860–860.9), which establishes a securitization pathway for costs the commission finds just and reasonable that are tied to undergrounding electrical infrastructure. If the PUC approves, it may issue a financing order designating those approved costs as “recovery property” and authorize fixed recovery charges—nonbypassable, irrevocable charges appearing on bills—to repay recovery bonds.
The statute defines financing costs, fixed recovery tax amounts, and ancillary agreements, creates a true-up mechanism, and explicitly allows recovery bonds and related transactions to be structured so that recovery property can be sold, pledged, or otherwise transferred to financing entities.Article 6.5 builds in protections and limits: recovery bonds are nonrecourse to the state (they’re payable only from recovery property), the PUC must provide an expedited application process (statutory timelines for consideration and true-up procedures), and issuance authority for recovery bonds expires December 31, 2035 (while existing financing orders remain effective thereafter). The article also exempts customers on CARE/FERA discounts from bearing fixed recovery charges and prohibits the commission from allowing a large electrical corporation to include infrastructure undergrounding amounts in its equity rate base—pushing financing toward securitization and debt rather than equity recovery.
The Five Things You Need to Know
The commission must approve or disapprove financing order applications within 120 days under the article’s expedited processing requirement.
Fixed recovery charges designated in a financing order are nonbypassable and apply to both existing and future consumers in a utility’s service territory until the recovery bonds and associated financing costs are fully paid.
Recovery bonds may be issued in one or more series on or before December 31, 2035; the authority to issue new financing orders expires that same date.
Customers participating in the CARE or FERA discount programs are explicitly excluded from bearing recovery charges under this article.
The statute creates an automatic statutory lien in recovery property upon effectiveness of a financing order and provides a clear statutory perfection mechanism (filed financing statement referencing the financing order) to secure bondholders’ priority.
Section-by-Section Breakdown
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Seasonal, volumetric climate credit on residential bills
This amendment directs utilities to place the residential California Climate Credit on customer bills in July, August, and September, and to calculate the credit volumetrically (scaling with consumption) rather than as an independent flat amount. Practically, utilities must change bill‑calculation routines and customer notices and will need to coordinate with the commission if extraordinary circumstances require an alternative timing. The change alters the distributional and incentive effects of the credit: higher-usage customers receive larger credits, while low‑consumption households receive proportionally less.
Scope and core definitions for undergrounding financing
Section 860 sets out when the article applies (applications where the commission finds undergrounding costs just and reasonable) and supplies the definitional toolbox used throughout the article—terms such as fixed recovery charges, recovery bonds, recovery property, and financing costs. These definitions anchor subsequent mechanics: they determine what can be securitized, what counts as financing costs recoverable in a financing order, and which charges are designated nonbypassable.
Conditions and standards for issuing financing orders
This section requires the commission to find recovery costs just and reasonable and that securitization reduces present‑value rates to consumers compared with traditional financing before issuing a financing order. It authorizes the commission to set periodic true‑up procedures, allows recovery of taxes not financed from bond proceeds via fixed recovery tax amounts, and mandates that fixed recovery charges appear on bills. The section also requires written consent from the electrical corporation before a financing order becomes effective and permits the commission to approve multiple financing orders over time.
Issuance, transfer, and security interests in recovery property
These sections govern how recovery bonds are issued (nonrecourse to the state), how an electrical corporation may sell or assign recovery property to financing entities, and how security interests or statutory liens in recovery property attach and are perfected. The law creates a statutory mechanism for perfection—filing a financing statement referencing the financing order—and treats approved transfers as true sales for most purposes, insulating bondholders in bankruptcy and giving pledgees foreclosure remedies.
Sunset, reimbursements, exemptions, and rate base limit
Here the bill sets the December 31, 2035 sunset for authority to issue financing orders (while preserving existing financing orders), requires utilities to credit customers if the utility later receives insurance proceeds or tax benefits related to financed amounts, exempts CARE/FERA customers from recovery charges, and forbids the commission from allowing a large electrical corporation to include infrastructure undergrounding amounts in its equity rate base—steering cost recovery toward debt-based securitization instead.
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Who Benefits
- Residential customers who use more electricity: Because the climate credit becomes volumetric, households with higher consumption will receive larger summer credits in dollar terms, which could provide greater near‑term bill relief for higher‑use households.
- Electrical corporations seeking capital: Utilities that undertake undergrounding projects can access lower-cost, upfront capital via recovery bonds that are insulated from corporate bankruptcy and rating volatility, improving their ability to finance large capital programs.
- Financing entities and bond investors: The statute creates a dedicated revenue stream (recovery property) with statutory liens and explicit perfection procedures, making recovery bonds more attractive to investors by reducing legal and commercial risk.
- Contractors and local economies in project areas: Accelerated access to financing can speed project starts and create work for construction and engineering firms that perform utility undergrounding.
Who Bears the Cost
- All consumers in a utility’s service territory (except CARE/FERA participants): Fixed recovery charges are nonbypassable and apply to current and future customers until bonds are paid, shifting long‑term cost burdens onto the full customer base.
- Billing agents and third‑party servicers: Entities that perform billing and collections must collect the new fixed recovery charges and remit them for bond repayment, adding compliance and operational responsibilities.
- Regulators and the CPUC staff: The commission must process applications on an expedited statutory timeline, monitor financing orders, and adjudicate true‑ups and transfers—functions that require staff time and technical expertise.
- Ratepayers indirectly through reduced regulator flexibility: Because financing orders make charges irrevocable and create property rights in those charges, future commissions have less room to reallocate costs or redesign rates if policy priorities change.
Key Issues
The Core Tension
The bill forces a trade‑off between accelerating and de‑risking financing for costly undergrounding projects (by creating saleable, bankruptcy‑resistant recovery property and nonbypassable charges) and preserving regulatory flexibility and consumer protections (because the same features lock future commissions and bind current and future consumers to long‑lived fixed charges).
AB 745 builds a powerful securitization tool but creates several implementation and policy tensions. First, the creation of irrevocable, nonbypassable fixed charges that constitute “recovery property” sharply limits later regulatory discretion: the commission pledges not to alter or revalue these charges for ratemaking while bonds remain outstanding, except for statutorily prescribed true‑ups.
That improves bond credit quality but constrains future rate design choices and can lock consumers into a particular allocation of costs decided at a specific moment in time.
Second, the bill’s bankruptcy‑resistant treatment of recovery property and the statutory lien/perfection regime reduces legal risk for investors but raises questions about consumer protections and priority conflicts in distressed scenarios. The statute allows commingling of revenues and provides pledgees a remedy limited to 12 months of commingled receipts in some circumstances—practical accounting, trustee, and operational rules will matter a great deal.
Third, changing the climate credit from a flat or independent payment to a volumetric seasonal credit alters its distributive effects and conservation incentives: lower‑use households and strong energy‑savers receive less direct relief, while higher users benefit more, complicating low‑income targeting and energy‑efficiency goals.
Finally, timing constraints and exclusions create pressure points. The authority to issue recovery bonds sunsets for new issuance on December 31, 2035, concentrating demand for securitization approvals into a finite window and raising sequencing questions with project readiness, insurance settlements, and tax treatment.
The statute also bars large electrical corporations from placing undergrounding amounts in their equity rate base, nudging utilities toward debt financing; that reshapes utility capital structure and could affect corporate debt costs and long‑term credit metrics in ways that are hard to predict now.
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