BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 9XX - Migden Hearing
Date: August 29, 2001 A
As Proposed To Be Amended FISCAL B
X
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DESCRIPTION
Current law permits marketers, public agencies, cities,
counties, and special districts to aggregate their electric
loads on a voluntary basis, provided that each customer in their
jurisdiction agrees to participate by a positive written
declaration (opt-in).
This bill creates new definitions for "community choice
aggregator," "municipal aggregator," and "private aggregator."
A "private aggregator" is essentially defined in the same manner
that all aggregators are defined in current law, which requires
a customer to "opt-in" to being served by an aggregator. For a
"community choice aggregator" or a "municipal aggregator," a
municipality or group of municipalities can serve as aggregators
for the businesses and residential customers within the
territory of that agency after adopting an ordinance. If a
customer wants to be served by someone other than the entity
selected by the public agency, that customer can do so upon
written notice (opt-out) to the public agency pursuant to the
rules established by that agency.
Current law requires a public agency that seeks to aggregate its
load on behalf of residential customers to offer the opportunity
to purchase electricity to all residential customers within the
agency's jurisdiction.
This bill deletes that requirement.
Current law requires the investor-owned utilities (IOUs)
regulated by the California Public Utilities Commission (CPUC)
to collect a non-bypassable surcharge on the distribution
component of each customer's bill based on usage. That money is
directed primarily to the CPUC and is used to fund four public
purpose programs - energy efficiency and conservation
activities, public interest research and development, in-state
development of renewable resource technologies, and assistance
to low-income customers.
Current law requires municipal utilities to collect a public
goods surcharge from each of its customers that's at least equal
to the lowest percentage level of the three largest IOUs in the
state and to spend it on energy efficiency and conservation
activities, public interest research and development, and
in-state development of renewable resource technologies as they
see fit.
This bill requires the CPUC to transfer a portion of the
research and development funds and the renewable resource
technology funds collected under current law to the California
Energy Commission (CEC).
This bill requires the CPUC to direct the pro-rata share of the
energy efficiency funds collected from the customers of a
community choice aggregator to that aggregator, provided the
aggregator chooses to spend the money on programs already
established and approved by the CPUC.
This bill permits the community choice aggregator to apply to
the CPUC for additional funding to pay for programs that haven't
already been approved by the CPUC.
This bill states that nothing in the act relieves any customer
served by a community choice aggregator of any obligation for
the purchase or power incurred on behalf of the customer prior
to the decision by the community to aggregate its power
purchases.
BACKGROUND
The concept of community aggregation, wherein the governing body
of the community, such as the city council, could choose an
electricity supplier for the entire community, was discussed but
ultimately tabled during the 1996 electric restructuring
debates. This bill resurrects that concept by permitting the
governing body to select a provider of electricity which then
becomes the default provider for everyone in the community.
Community aggregation is akin to "municipalization light" and/or
direct access on a much grander scale. In a municipalization,
the municipal utility has to purchase or build power plants and
transmission lines, take over all contracting, distribution,
billing, and meter-reading responsibilities from the IOU, and is
regulated by its own locally-elected board instead of the CPUC.
Aggregation brings virtually none of those responsibilities,
because most of them stay with the incumbent IOU. Under
community aggregation, a community simply tries to negotiate a
contract to buy energy on behalf of its residents and
businesses. That power is then delivered by the incumbent IOU
and shows up on the customer's bill in place of the energy that
the IOU was previously providing to its customers.
The public goods surcharge and accompanying programs were
created in the original electrical restructuring legislation, AB
1890 (Brulte), Chapter 854, Statutes of 1996, and extended last
year by SB 1194 (Sher), Chapter 1050, Statutes of 2000 and AB
995 (Wright), Chapter 1051, Statutes of 2000. The public goods
surcharge is a per-kilowatt-hour fee paid by all electric
customers to fund four public goods categories: 1) energy
efficiency; 2) renewable energy sources; 3) research and
development of alternative energy supplies; and 4) assistance to
low-income users.
The law requires the IOUs to spend specific amounts of money or
percentages of money from the baseline year 1994, in each of the
first three categories, while the fourth, the low-income
assistance program, is a needs-based program. In contrast,
Public Utilities Code Section 385 states that publicly-owned or
municipal electric utilities aren't required to comply with any
particular spending formula and have complete discretion over
how they spend their public goods monies.
The surcharge collected from each municipal customer can't be
less than the lowest percentage level of the three largest
electrical corporations in the state. Currently, the surcharge
directs about 2.85% of an IOU customer's electric bill toward
the public goods programs, raising an estimated $228 million
annually for the public goods programs (excluding the low-income
assistance program) in the territories of the three IOUs.
COMMENTS
1.Community Aggregation . The concept of community aggregation
is an attempt to create buying power within a community. By
aggregating a community's buying power, the community will
theoretically benefit by obtaining lower prices and better
service than if individual community members made their own
deals. For example, a homeowner probably pays less for
garbage and recycling services with the city negotiating a
contract on behalf of all of its residents than if each
homeowner were left to negotiate an individual garbage and
recycling contract on their own.
2.How A Community Aggregates . The bill allows the following
groups to serve as a community choice aggregator or a
municipal aggregator:
q An individual municipality;
q A group of municipalities;
q A county or irrigation district where the municipal
governments in their jurisdiction have agreed;
q A county or irrigation district whose governing board
elects to combine the loads of facilities in unincorporated
areas;
q Any municipal utility district that didn't provide
electrical service as of the effective date of this
measure.
The municipality or group of municipalities has to develop an
implementation plan, which can only be adopted at a duly
noticed public hearing. The plan must provide for universal
access, reliability, and equitable treatment of all classes of
customers. Any community that elects to implement a community
choice aggregation program must do so by adopting an
ordinance.
An ordinance, by definition, can't take effect for 30 days and
during that time it is referendable should residents get the
requisite number of signatures to put it on the ballot.
Once a municipality chooses to aggregate its load via adoption
of a local ordinance, any ratepayer that wishes to opt-out of
that service has 180 days to do so without penalty. Any
ratepayer who opts out after the 180 period is subject to a
re-entry fee that's set by the IOU and approved by the CPUC.
1.Notifying Customers . To alert customers of the change, the
aggregating entity has to fully inform customers 30 days in
advance of automatic enrollment and notify them for at least
three consecutive billing cycles following enrollment of the
change. The aggregator has the choice of notifying customers
by direct mailings, inserts in water, sewer, or other utility
bills, or contracting with the IOU to provide the notification
in its regular bill. In the latter instance, the IOU is
permitted to recover from the aggregator all reasonable costs
associated with the notification. The author and committee
may wish to consider whether this will provide consumers with
the appropriate notification. If the notice that, for
example, a city plans to enter into a community aggregation
arrangement, is a customer likely to be made aware of that if
they receive the notice in their existing water bill? The
bill does require any decision to enter into an aggregation
arrangement to be made at a duly noticed public hearing.
2.Opt-In vs. Opt-Out . Under current law, cities, counties,
special districts, public agencies, and private individuals
and businesses can aggregate their electric loads on a
voluntary basis, provided that each customer "opts in" to the
system.
This bill changes the burden on the individual consumer
because it permits certain entities (those noted in Comment 2)
to aggregate the load for everyone within certain boundaries
and requires the individual consumer to "opt-out" if he or she
wants to continue buying power from their existing - or
another - provider.
3.What Are The Boundaries? Presumably, the boundaries of the
area to be aggregated will follow the boundaries of a
municipality, but there appear to be a couple of exceptions to
that presumption.
The first is that the bill deletes a section of existing law
that requires any public agency seeking to serve as a
community aggregator on behalf of residential customers to
serve all of the residential customers in its jurisdiction.
The author and committee may wish to consider whether such a
deletion will allow certain residential customers to be
treated differently that other residential customers.
The second has to do with municipal utility districts (MUD) or
counties that choose to serve as community aggregators. Under
this measure, a MUD may aggregate only if the cities or
counties within the MUD pass an ordinance to "opt-in" to the
program. If they don't, then the MUD will be buying power for
some, but not all, of its customers.
Put another way, this bill changes the existing law "opt-in"
option that everyone has to abide by into a hybrid of sorts.
If you're an individual or a business and your city wants to
aggregate, you're in unless you opt-out. If you're a city in
a MUD and the MUD wants to aggregate, you're out unless you
opt-in. And if you're a person or a business in a MUD that
wants to aggregate, you can opt-out if your city opts-in, but
you can't opt-in unless your city also opts-in.
4.Municipal Utility Districts That Aggregate . The bill allows
MUDs that didn't provide electrical service as of the date of
enactment of this measure to serve as a community aggregator.
Under current law, a MUD can be made up of one or more public
agencies - which are defined by Public Utilities Code 11504
as a city, county water district, county sanitation district,
or sanitary district - and may include unincorporated areas of
a county. The public agencies and unincorporated territory
can be in the same or separate counties, but the district
doesn't have to be contiguous.
A MUD is created by the local voters of the proposed MUD
territory and the creation of the MUD must specify the
services the MUD will provide. Right now, a MUD that would
like to provide electricity service can do it one of two ways
- it can go to the voters in the district and ask it to expand
the services it can provide or it can get existing IOU
electricity ratepayers to "opt-in" to an aggregation contract
the MUD wants to enter into.
Instead of having the voters make one of those two affirmative
determinations, this bill allows a MUD's board of directors to
adopt an ordinance to expand it's duties and get into the
community aggregation business. That leaves voters and
businesses with the responsibility to "opt-out" if the want to
receive service from their current (or a different) provider.
The same distinction applies to cities and counties which can
become community aggregators under this measure, but the
question the author and committee may wish to consider is one
of accountability. A city council or a board of supervisors
that serves as a community aggregator for the residents of its
city or county is directly accountable to that city or
county's voters. A group of cities that form a joint powers
authority to serve as a community aggregator for all the
residents of those cities are somewhat less accountable. A
MUD, which may include a variety of public agencies, that
wants to serve as a community aggregator may be even less
accountable.
A technical issue the author and committee may wish to
consider addressing is an inconsistency in the mock-up. Page
3 of the mock-up refers to "municipal utility districts" but
Page 6 of the mock-up refers to "special districts." A
"special district" is a term that encompasses more than just
public agencies and MUDs.
Government Code 56036 defines a "special district" as an
agency of the state, formed pursuant to general law or special
act, for the local performance of governmental or proprietary
functions within limited boundaries. The legislative body of
a special district isn't made up of directly elected
officials. Instead, it's made up of ex-officio members who
are officers of a county or another local agency or who are
appointees of those officers, other than those who are
appointed to fixed terms.
Government Code 56044 defines an "independent special
district" as a special district that has a legislative body
all of whose members are elected by registered voters or
landowners within the district, or whose members are appointed
to fixed terms.
5.DWR Power Purchases, Direct Access & Cost Shifting . Community
aggregation is essentially a group of ratepayers (via a
municipality) entering a direct access contract. However, the
entire direct access issue became complicated in January when
DWR began buying power on behalf of the customers of the IOUs.
The "complication" is that DWR's procurement costs are higher
than current rates and DWR has incurred debt for each customer
served since it began buying power for IOU customers in
January. For departing customers, DWR has at least two main
financial concerns. The first is the cost of serving that
customer to date. If DWR has issued bonds to finance the cost
of buying power for the customer now, and the customer leaves,
the rate stream needed to pay off those bonds disappears.
The second concern is related to commitments made to serve
that customer in the future, i.e., long-term contracts. If
DWR secures contracts to serve a projected load, and that load
shrinks as a result of customer departure, DWR may be left
with "stranded" contract obligations.
If community aggregation customers are permitted to go to
alternate providers and leave legitimate obligations behind,
the remaining IOU customers will have to cover the costs
through rate increases. SB 1172 (Kuehl), SB 23XX (Soto), and
AB 69 (Wright) are measures that permit specific entities to
engage in direct access transactions. Those bills were
amended in the Senate to include language to prevent the costs
associated with having DWR purchase power on behalf of the
customers who benefit from those bills from being shifted to
other customers.
Page 10 of the mock-up attempts to address it, but it does it
in a way that wouldn't allow DWR to recover its future costs
that it may have already obligated itself to on behalf of this
group of aggregating customers and it's questionable as to
whether it would allow DWR to recover its past costs. As
such, the author and committee may wish to consider inserting
a modified version of the language that was placed into SB
23XX, SB 1172, and AB 69 to prevent cost shifting. The
language from SB 23XX (which would have to be modified
slightly to apply to "community aggregator" or "municipal
aggregator" for this bill) is as follows:
Any new municipal utility district or new municipal utility
is obligated to the Department of Water Resources for an
amount equivalent to the net unavoidable cost of power
procurement for the Department of Water Resources,
including, but not limited to, any financing costs,
attributable to the customers of the new municipal utility
district or new municipal utility, as determined by the
Department of Water Resources. The Department of Water
Resources net unavoidable cost shall be calculated as the
difference, if any, between its total actual procurement
costs and the rates collected by the Department of Water
Resources from the customer during the term of service.
Any amounts due pursuant to this section for the purchase
of power may be payable in installments over a term
coincident with the term of bonds issued to finance the
purchase of that power.
6.Other Direct Access Issues . While the bills noted above deal
with individual classes of customers that may wish to engage
in direct access transactions, there are two other measures
that attempt to create an overall, more general direct access
policy.
SB 27XX (Bowen), which was defeated on the Senate floor,
requires any entity that wants to engage in a direct access
transaction to pay for the cost of the power DWR has purchased
on its behalf. The measure provides an exception for
going-forward costs (not back costs) to residential, small
commercial, and residential and small commercial customers who
aggregate their purchases under the section of law that AB 9XX
proposes to amend under certain circumstances. The exemption
would only apply if the total load proposed to be served by
the alternative provider in the IOU territory is less than or
equal to the total load growth in the IOU territory. In other
words, if the usage goes up by 10% in a given IOU territory
and a community that decides to aggregate its load that would
take 7% of the usage elsewhere, the community can depart
without any obligation for stranded contractual obligations
because the new load growth in the area will wind up "buying"
the DWR power, meaning those costs won't have to be
transferred to other existing customers.
SB 78XX (Polanco), which is pending in the Assembly, attempts
to deal with the issue of Southern California Edison's back
debt. It also includes a provision dealing with direct
access, but the exact language that may be amended into that
measure is unclear at this time.
The CPUC, in a draft decision issued this week, has indicated
it plans to suspend the ability of any customer to enter into
a direct access transaction as of August 1, 2001. The CPUC
plans to take up this draft decision on September 6, 2001.
The draft decision makes no allowance for customers than want
to enter into a direct access transaction, even if they're
willing to re-pay DWR for the cost of power it's bought on
behalf of that customer.
7.Energy Efficiency Funding - Letting Community Aggregators Take
The Money . As noted in the "Background" section, every IOU
customer pays a surcharge on their bill based on their
kilowatt hour usage (not the price of the power) that goes to
fund a number of public purpose programs. The money is
collected for the "public good" and is spent where the CPUC
and the IOUs determine they can get the most bang for the
buck. There is no requirement in law that if the ratepayers
of City X pay $100,000 in public goods charges, that $100,000
will be spent on energy efficiency or other public goods
programs to benefit the ratepayers of City X.
This measure alters the current "public good" philosophy by
letting the community aggregator take back the contributions
its customers provide to the energy efficiency programs to pay
for its own energy efficiency programs, provided those
programs have already been approved by the CPUC. As written,
it appears this would allow a community aggregator to set up a
program that's duplicative of the existing CPUC-approved IOU
programs with a duplicative administrative structure used to
administer an energy efficiency program. According to
supporters, the intent of this section is to allow the funding
to be used to contract for existing "off the shelf" programs
provided by existing contractors. If that's the case, the
author and committee may wish to consider adopting technical
amendments to accomplish this goal. Then the only question is
whether a community aggregator should be guaranteed to have
100% of the energy efficiency monies collected from its
ratepayers spent in the aggregated area, which this bill
requires.
It should be noted that under existing law, municipal
utilities that provide electricity are required to collect a
public goods surcharge from each of its customers that's at
least equal to the lowest percentage level of the three
largest IOUs in the state. The money collected must be spent
in the three public goods categories (energy efficiency and
conservation activities, public interest research and
development, and in-state development of renewable resource
technologies), but the municipal utility's elected board can
apportion the funding as it sees fit. The board can also
choose to increase the amount of any surcharge.
This measure gives community aggregators a "pro rata share" of
the existing energy efficiency money. However, if this same
community were to form a municipal utility, it would only
receive an amount of money that's at least equal to the lowest
percentage level of the three largest IOUs in the state.
Instead of guaranteeing a pro rata share of the money
collected be returned to the aggregating community, the author
and committee may wish to consider whether the provisions of
this bill should mirror the provisions of existing law that
provide energy efficiency money to municipal utilities. Under
that concept, the community aggregator would be allowed to
collect the lowest percentage level of the three largest IOUs
in the state that's collected to fund cost-effective energy
efficiency and conservation activities.
8.Letting Community Aggregators Apply For More Money? This
measure also allows community aggregators to apply to the CPUC
for energy efficiency funds and use them for non-approved CPUC
programs. It's unclear from the drafting whether the CPUC
would have to approve the program and whether this refers to
money within the pro rata share guaranteed (under certain
conditions) to the aggregating entity or above that funding
level. The author and committee may wish to consider
clarifying the intent of this section. If it's the intent to
allow the community aggregator to apply for funding above
their "guaranteed" level, the author and committee may wish to
consider whether this is appropriate, given that no municipal
utility is allowed to apply for additional funding. Instead,
municipal utilities have the ability to raise rates to
increase the amount of money directed to energy efficiency and
other programs. The author and committee may wish to consider
whether it would be more appropriate to require the community
aggregator to raise these funds from its own ratepayers
instead of asking the CPUC to divert money from other
ratepayers to pay for additional community aggregation
programs.
9.Redirection of Research & Development Funds . This measure
diverts certain public purpose funds collected as a part of
the surcharge on each IOU customer's bill from the CPUC to the
CEC. This was actually the law until last year, when this
subsection was deleted by SB 1194 (Sher) and AB 995 (Wright).
According to Legislative Counsel, this section redirecting the
money back to the CEC is a technical drafting error and should
be corrected. As such, the author and committee may wish to
consider making this correction.
10. Related Legislation . SB 23XX
(Soto), which is pending in the Assembly Energy Costs &
Availability Committee, makes it easier for cities and
counties to form municipal utility districts. This bill
includes language to require the customers of any district
that's formed to repay the benefit they received from any past
and future DWR power purchased on their behalf.
SB 1126 (Alarcon) and SB 8XX (Alarcon) are bills in this
committee that are conceptually to but much narrow than AB 9XX
(Migden). The committee did hear SB 8X (Alarcon), which was
identical to SB 1126, back in April. That measure was held in
committee and died when the First Extraordinary session was
adjourned in May.
SB 1172 (Kuehl), which is pending on the Assembly floor,
permits LADWP to provide service to an entire property if
LADWP serves part of that property. This bill includes
language to require these customers to repay the benefit they
received from any past and future DWR power purchased on their
behalf.
AB 69 (Wright), which is pending on the Senate floor, permits
the Los Angeles Department of Water & Power (LADWP) to sell
power to five specific governmental entities in the Southern
California Edison service territory. This bill includes
language to require these customers to repay the benefit they
received from any past and future DWR power purchased on their
behalf.
SB 27XX (Bowen), which was defeated on the Senate floor,
requires any entity that wants to engage in a direct access
transaction to pay for the cost of the power DWR has purchased
on their behalf. The measure provides an exception to
residential, small commercial, and residential and small
commercial customers who aggregate their purchases under
certain circumstances.
SB 78XX (Polanco), which is pending in the Assembly, attempts
to deal with the Southern California Edison's back debt. It
also includes a provision dealing with direct access that by
some accounts creates a wide window by which a person,
business, or community aggregator can avoid repaying DWR for
the costs associated with the power that it has contracted for
on behalf of users.
ASSEMBLY VOTES
Assembly Floor (71-1)
POSITIONS
Sponsor:
Author
Support:
California State Association of Counties
League of California Cities
One individual
Oppose:
None on file
Evan Goldberg
AB 9XX Analysis
Hearing Date: August 29, 2001