BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 69 - Wright Hearing Date:
July 10, 2001 A
As Amended: June 19, 2001 Non-FISCAL
B
6
9
DESCRIPTION
Current law bars municipal utilities from providing electric
service to retail customers of investor-owned utilities (IOUs)
unless the customer confirms in writing an obligation to pay a
generation-related transition charge established by the California
Public Utilities Commission (CPUC).
Current law bars one utility from selling to the customers of
another utility unless the two utilities enter into a reciprocity
agreement whereby each is allowed to sell power to the retail
customers of the other.
This bill waives the reciprocity requirement in current law to
permit the Los Angeles Department of Water and Power (LADWP) to
sell power to specified customers of Southern California Edison
(SCE) without allowing SCE to sell power to LADWP's customers.
BACKGROUND
Interest in municipal utilities has grown with the ongoing price
and reliability concerns of IOU customers. LADWP has become
popular in recent months because it has a surplus of electricity
and relatively low rates.
This bill gives five specified governmental agencies (the County
of Los Angeles, the L.A. Unified School District, the L.A. County
Metropolitan Transportation Authority, the L.A. County Office of
Education, and the L.A. Community College District) the ability to
buy power from LADWP. Such service will be via a "direct access"
arrangement whereby LADWP provides the power that's transported
over SCE's electric distribution grid. It's estimated that the
total load eligible to be shifted to LADWP under this bill will be
about 125 megawatts (MW).
The issue of direct access has been the subject of a great deal of
discussion in the Legislature and at the CPUC in recent weeks.
Direct access is a relatively simple notion - instead of being
required to buy power from the municipal or investor-owned utility
(IOU) where the person or business is located, that person or
business can choose to buy power directly from another supplier.
The direct access issue became complicated in January when the
Department of Water Resources (DWR) began buying power on behalf
of SCE's customers (and customers of Pacific Gas & Electric and
San Diego Gas & Electric) as a result of SB 7X (Burton), Chapter
3, Statutes of 2001. It was further complicated in February when
DWR began entering into long-term contracts to buy power for
customers of the IOUs as a result of AB 1X (Keeley), Chapter 4,
Statutes of 2001.
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 procuring 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 securitized anticipated future rates to cover the cost
of buying power for the customer now, and the customer leaves, the
future rate stream 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 customers are permitted to go to alternate providers and leave
legitimate obligations behind, the remaining IOU customers will
likely have to cover the costs through rate increases.
COMMENTS
1)Direct Access From A Municipal Utility . As noted above, this
bill effectively allows LADWP to become a direct access provider
for five specific governmental entities in L.A. County, allowing
those entities to stop buying power from SCE (and DWR, which is
buying some power to serve SCE customers).
SB 1172 (Kuehl) and SB 23XX (Soto) are two measures that permit
other entities to engage in direct access transactions. SB 1172
allows certain customers who currently receive power from both
LADWP and SCE to opt to receive all of their power from LADWP,
while SB 23XX makes it easier for local governments to form
municipal utility districts to buy and/or generate their own
power. Those bills were amended in the Senate to include
language aimed at precluding the costs associated with having
DWR purchase power on behalf of customers covered by those bills
from being shifted to other customers. The language requires
any entity that takes advantage of the option given to it under
either of the bills to pay DWR for any uncollected costs of
serving them, to prevent these costs from being shifted to
remaining customers.
In the case of SB 1172, the bill also allows the CPUC to limit
the right of customers to obtain service from LADWP to the
extent such limitation is necessary to ensure DWR's ability to
meet its obligation to repay the bonds.
Given the conditions placed into similar bills to ensure that
DWR will be able to recover its costs for power that it's
purchased on behalf of customers of the IOUs (including the
customers covered by this bill) and ensure that future contract
costs aren't shifted to other customers who can't or don't take
advantage of direct access opportunities, the author and
committee may wish to consider whether such conditions should be
placed into this bill as well.
2)How Much Power Has DWR Bought? According to information
provided by DWR to this committee during its June 20 hearing, it
has contracts or agreements in principal to cover anywhere from
51% to 99% of the projected net short between 2002 and 2010.
Those projections are based on a series of educated guesses
relative to demand growth, conservation efforts, the
availability of new power supplies, weather forecasts, demand
management programs, and more.
3)Effect On Other Customers' Pocketbooks . Allowing one set of
customers access to (presumably) cheaper LADWP power provides
those customers with a benefit, but that benefit is paid for by
every other IOU customer in the state. Consider the following
scenario using hypothetical numbers: Assume that DWR (which has
taken over the responsibility of buying the net short from the
state's IOUs) has 10,000 customers and needs to buy 10 MW of
power for them. If DWR buys 9 MW on the spot market at $50/MW
and buys 1 MW from LADWP at $10/MW, DWR will have spent $460 for
10 MW which is an average cost of $46/MW. If, however, LADWP
doesn't sell that power to DWR but instead sells it directly to
1,000 customers of DWR, then DWR would only have to buy 9 MW of
power at $50/MW. This reduces DWR's total cost from $460 to
$450, but it raises the average cost per MW paid by DWR's
customers from $46 to $50. In other words, this bill
effectively transfers the benefit of LADWP's cheap power from
the general body of ratepayers to those customers who are
statutorily permitted to purchase power directly from LADWP by
this measure.
4)How Much Power Does LADWP Have & Who's Getting It Now?
According to the City of Los Angeles, LADWP has the capacity to
produce about 3,400 MW of power each day, but its average load
within its service territory is about 1,700 MW per day.
Furthermore, according to information provided by the author,
LADWP is planning to add 300 MW of peaking units this summer, is
considering an additional 500 MW of capacity in the L.A. basin,
and an upgrade to its Utah generating station. According to the
City of Los Angeles, the peaking units are expected to be
available sometime in August, but there is no timetable set for
the potential additional capacity in the L.A. basin or in Utah.
Recently, the Governor and the City of Los Angeles began
negotiating to have LADWP provide all of its excess generating
capacity to DWR. According to the City of Los Angeles, the
agreement being contemplated with the state would indeed provide
100% of LADWP's excess capacity to the state, but the agreement
would only run for three months (July-September 2001). Should
this bill be approved by the Legislature and be signed into law
by the Governor, it won't take effect until January 1, 2002, at
which time LADWP will have all of its 1,700 MW of excess
capacity available to enter into a contract to provide a portion
of that power to the entities listed in this bill.
5)Are Savings & Uninterruptible Service Guaranteed? Supporters
believe by switching electric service from SCE to LADWP, they'll
realize sizeable savings and be better assured of
uninterruptible service.
However, it's not clear any savings will be realized through
this bill because nothing in the measure requires LADWP to offer
service to new customers at the rates offered to it existing
customers. LADWP may decide, for whatever reason, that the
rates charged to these new customers should be higher than the
rates charged to the customers in its existing service
territory.
As for the prospect of reliable, uninterrupted service that's
alluded to in the intent language section of the bill on Page 2,
Lines 7-9 and Page 2, Lines 15-18, this bill won't provide
customers with more reliable service or increased protection
from blackouts. That's because even though these customers are
purchasing electrons from LADWP, those electrons are provided
over SCE's electric distribution lines and if SCE is required to
interrupt service, all those served on SCE's distribution grid
will be subject to interruption.
6)Related Legislation . AB 54X (Wright) was identical to this bill
and was defeated on May 8 by this committee as it was
constituted in the First Extraordinary session (with 11 members,
instead of the 9 members who constitute the regular session
committee).
AB 9XX (Migden) makes it easier for communities to aggregate
their power purchases and enter into direct access transactions.
This bill is pending in this committee.
AB 11XX (Wright) is identical to this measure and is pending in
this committee.
AB 42XX (Kelley) is similar to SB 27XX (described below) but
provides for a number of exemptions to the requirement that
customers leaving IOU/DWR service have to repay DWR for the
benefit they've received in order to ensure that power costs
don't get shifted to other customers. This bill is pending in
this committee.
SB 1172 (Kuehl) permits certain customers that straddle the
LADWP service line and receive part of their service from LADWP
to opt to receive all of their service from LADWP. This bill is
pending in the Assembly Appropriations Committee.
SB 8XX (Alarcon) permits LADWP (or any other municipal utility)
to sell that power to communities that choose to aggregate their
power purchases. This bill is pending in this committee.
SB 23XX (Soto) makes it easier for local governments to form
their own municipal utility districts. This bill is scheduled
to be heard in the Senate Appropriations Committee on July 16.
SB 27XX (Bowen) requires any entity that purchases power from a
direct access provider to repay DWR for the cost of the power
it's purchased on behalf of that customer and ensures that
future contract costs aren't shifted to other customers who
can't or don't take advantage of the ability to buy power
through a direct access arrangement. That bill was defeated on
the Senate Floor on July 5, but it may be reconsidered in the
future.
ASSEMBLY VOTES
Assembly Floor (74-0)*
Assembly Appropriations Committee (21-0)*
Assembly Natural Resources Committee
(10-0)*
Assembly Utilities and Commerce Committee
(17-0)*
* Votes were on a prior, unrelated version of AB 69 that dealt
with the Governor's Clean Energy Green Team.
POSITIONS
Sponsor:
Los Angeles County Board of Supervisors
Los Angeles Community College District
Support:
City of Los Angeles
Los Angeles Unified School District
Oppose:
None on file
Evan Goldberg
AB 69 Analysis
Hearing Date: July 10, 2001