BILL ANALYSIS                                                                                                                                                                                                                   1
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             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
                                                                       
            
                                                                       
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                                   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