BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN AB 80 - Havice Hearing Date: June 11, 2002 A As Amended: April 8, 2002 FISCAL B 8 0 DESCRIPTION Existing law authorizes retail competition within investor-owned utility (IOU) service areas (direct access) and authorizes marketers, public agencies, cities, counties, and special districts to offer electric service to customers aggregated on a voluntary basis, provided that each customer in their jurisdiction agrees to participate by a positive written declaration (community aggregation). Existing law (AB 1X (Keeley), Chapter 4, Statutes of 2001) requires the California Public Utilities Commission (CPUC) to suspend the right of retail customers of IOUs to acquire electric power service from non-IOU providers until the Department of Water Resources (DWR) no longer supplies power to IOU customers. Pursuant to AB 1X, the CPUC has suspended direct access as of September 20, 2001. This bill establishes an exemption from the direct access suspension which would authorize two cities (Cerritos and San Marcos) in Southern California Edison's service area to act as community aggregators and provide direct access service to their residents. BACKGROUND In 1996, the Legislature passed AB 1890 (Brulte), Chapter 856, Statutes of 1996, to restructure the electric industry. One of the key features of electrical restructuring was the authorization of retail competition within IOU service areas. AB 1890 ended the service monopoly of utilities and authorized retail customers to purchase energy directly from suppliers. These transactions are known as "direct access." Community aggregation is a form of direct access where, for example, a city may act as a purchasing agent on behalf of its residents. AB 1X, as part of the structure to authorize DWR to purchase electricity for utility customers, authorized the CPUC to prohibit additional direct access. AB 1X permits the issuance of ratepayer-backed revenue bonds to finance DWR purchasing costs. To ensure the predictable revenue stream necessary for the issuance of bonds and prevent cost-shifting from direct access to bundled service customers, the CPUC was authorized to prevent additional migration of IOU customers by suspending direct access. Pursuant to AB 1X, the CPUC has suspended IOU customers' right to acquire direct access service after September 20, 2001. COMMENTS 1.Where will the power come from? The cities affected by this bill are partners in the development of the Magnolia Power Project, along with five other cities which operate municipal electric utilities. Magnolia is currently under review at the California Energy Commission (CEC). The CEC projects a decision on the project in August, and, if approved, an on-line date of August 2004. According to the author, Cerritos and San Marcos were relying on direct access to sell their share of the output of Magnolia to their residents and committed $5 million to Magnolia prior to the CPUC's suspension of direct access. Proponents suggest the bill will allow the cities to sell their share of the output of Magnolia to their residents. It is unclear whether the cities, absent the enactment of this bill, would be able to recoup their investment in Magnolia through other means, such as sale of the power at wholesale (e.g. via their municipal utility partners). The bill contains no requirement that the cities use power from Magnolia as a condition of their exemption from the direct access suspension, only that they are partners in the power plant's development, a condition they have already met. If enacted, the bill would allow the cities to offer direct access whether or not they deliver power from Magnolia, before Magnolia is constructed, or even if Magnolia never is constructed. If the possibility of furthering the construction of Magnolia is viewed as a compelling reason for the bill, the author and the committee may wish to consider making construction of Magnolia, and delivery of the power to the residents of Cerritos and San Marcos, a condition of the cities' exemption from the direct access suspension. 2.No provision for cost recovery. Customers departing utility service since the energy crisis bear some responsibility for a share of procurement costs and obligations incurred by their utility and the Department of Water Resources (DWR) to serve them that have not yet been recovered via customer rates. Recoverable procurement costs attributable to departing customers will be shifted to remaining utility customers if they are not recovered from the departing customers. The question of departing customers' responsibility for outstanding procurement costs and obligations incurred on their behalf is being addressed currently at the CPUC, as well as in a number of pending bills - SB 1519 (Bowen), SB 1755 (Soto), SB 1871 (Monteith) and AB 117 (Migden). Each of these measures makes reimbursing DWR for power costs incurred on their behalf a condition of the benefit they offer (in the case of those bills, the benefit is allowing customers to leave utility service.). This bill contains no provision to ensure cost recovery, although it does contain a requirement that customers leaving under this bill bear no greater share of DWR's costs than customers who departed for direct access between January 17, 2001 and July 1, 2001 (Page 4, lines 7-12). The rationale for this provision is that, while residents of Cerritos and San Marcos would not receive direct access service until sometime after the bill is enacted, the cities planned to use direct access prior to July 1, and so should be treated as if they had departed prior to July 1. However, it is not clear whether the CPUC will treat pre-July 1 customers differently, or whether it should. At this time, the share of DWR's costs that these customers will pay is unknown. If these customers ultimately paid nothing, this provision would guarantee that customers leaving under this bill would also pay nothing. The author and the committee may wish to consider instead adding the following suggested amendments to ensure adequate cost recovery and make implementation of the bill contingent on CPUC adoption of an adequate cost recovery mechanism for existing direct access customers. These amendments are consistent with amendments added by this committee to the measures described above. On page 4, strike out lines 7-12 and insert: (c) (1) It is the intent of the Legislature that each retail end use customer that has purchased power from an electrical corporation on or after February 1, 2001, regardless of whether the customer thereafter takes service from an alternate provider, including a community choice aggregator, bear a pro rata share of the Department of Water Resource's power purchase costs, as well as power purchase contract obligations incurred as of the effective date of this act, that are recoverable from electrical corporation customers in commission-approved rates. It is the further intent of the Legislature to prevent any shifting of recoverable costs from customers who take service from an alternate provider, including a community choice aggregator, to electrical corporation customers. (2) To the extent that any shifting of recoverable costs would occur, in the determination of the commission, those costs shall be recovered from each customer class in proportion to the load of each class that is served by alternate providers, including community choice aggregators. (3) The Legislature finds that this subdivision is consistent with the requirements of Chapter 4 of the Statutes of 2001, First Extraordinary Session, and is therefore declaratory of existing law. (d) A retail end use customer purchasing power from a community choice aggregator pursuant to this section shall reimburse the department for all of the following: (1) The department's unrecovered actual cost of power procurement, including any financing and administrative costs, attributable to the customer, as determined by the commission. The department's actual cost shall be calculated as the difference, if any, between the department's total actual procurement costs attributable to the customer and the revenues collected by the department from the customer during the customer's term of service with the department. The commission shall publish, and update as necessary, a formula for calculation of unrecovered costs that are due pursuant to this subdivision. (2) Any additional costs of the department, equal to the share of the department's estimated net unavoidable power purchase contract costs attributable to the customer, as determined by the commission, for the period commencing with the customer's purchases of electricity from the community choice aggregator, through the expiration of all then existing power purchase contracts entered into by the department. (e) A retail end use customer purchasing power from a community choice aggregator pursuant to this section shall reimburse the electrical corporation that previously served the customer for all of the following: (1) The electrical corporation's unrecovered past undercollections, including any financing costs, attributable to that customer, that the commission lawfully determines may be recovered in rates. (2) Any additional costs of the electrical corporation recoverable in commission-approved rates, equal to the share of the electrical corporation's estimated net unavoidable power purchase contract costs attributable to the customer, as determined by the commission, for the period commencing with the customer's purchases of electricity from the community choice aggregator, through the expiration of all then existing power purchase contracts entered into by the electrical corporation. (f) (1) This section shall not become operative until the commission develops a cost-recovery mechanism, consistent with subdivision (c), that is applicable to customers that elected to purchase electricity from an alternate provider between February 1, 2001 and the effective date of the act adding this section. (2) Prior to implementing this section, the commission shall submit a report certifying its satisfaction of paragraph (1) to the Senate Energy, Utilities and Communications Committee, or its successor, and the Assembly Committee on Utilities and Commerce, or its successor. 3.Related legislation. AB 117 (Migden), pending in this committee, establishes a general exception to the direct access suspension for community aggregation undertaken by cities and counties serving their own residents. AB 117 would change the procedures governing community aggregation to, among other things, allow cities and counties to aggregate on an "opt-out" basis, rather than an "opt-in" basis. AB 117 contains provisions intended to ensure cost recovery from departing customers. PRIOR VOTES Senate Environmental Quality Committee (7-0)* Assembly Floor (75-0)* Assembly Appropriations Committee (21-0)* Assembly Education Committee (14-0)* Assembly Environmental Safety & Toxic Materials Committee(9-0)* *Votes reflect a previous, unrelated version of the bill POSITIONS Sponsor: City of Cerritos Support: California Municipal Utilities Association City of San Marcos Discovery Valley Utility Sempra Energy Southern California Public Power Authority Oppose: Southern California Edison Lawrence Lingbloom AB 80 Analysis Hearing Date: June 11, 2002