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
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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