BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 54X - Wright Hearing
Date: May 8, 2001 A
As Amended: February 28, 2001
Non-FISCAL B
X
1
5
4
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 first utility agrees to let
the second utility sell to the retail customers of the
first.
This bill permits the County of Los Angeles, the Los
Angeles Unified School District, the Los Angeles County
Metropolitan Transportation Authority, the Los Angeles
County Office of Education, and the Los Angeles Community
College District to purchase electricity for their own use
within the county limits from the Los Angeles Department of
Water and Power (LADWP), even if those governmental
facilities are located in the territory of Southern
California Edison (SCE).
BACKGROUND
Interest in municipal utilities has risen with the ongoing
price and reliability concerns of customers of IOUs. LADWP
has become popular in recent months because it has surplus
electricity and relatively low rates. When electric
markets were restructured in 1996, many felt LADWP would be
one of the losers precisely because it had expensive,
surplus capacity.
Under this bill, the five specified governmental agencies
will have access to LADWP's power if there is mutual
agreement, even if the governmental facilities are
currently being served by SCE. Such service will be via a
direct access relationship whereby LADWP provides the power
that is transported over SCE's electric distribution grid.
It's estimated that the total load eligible to shift to
LADWP under this bill will be about 125 megawatts (MW).
COMMENTS
1.Who Can Take Advantage Of This Bill? Page 4, Lines 3-10
of the measure spells out the governmental entities that
will be permitted to purchase LADWP power should this
measure become law. While, as noted above, supporters
estimate that 125 MW of power could be shifts, the
committee hasn't been able to obtain a complete list of
the actual properties that would be eligible to receive
service.
2.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
what ever 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 uninterrupted service, this bill
probably won't provide new customers with better service
levels because even though these customers are purchasing
electrons from LADWP, those electrons are provided over
SCE electric distribution lines. If SCE is required to
interrupt service, all those served on SCE's distribution
grid will be subject to interruption.
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. The benefit of LADWP's cheap power is
transferred from the general body of ratepayers to those
customers who are statutorily permitted to purchase power
directly from LADWP.
4.Stranded Costs . This bill may saddle DWR with stranded
costs for power it has contracted for to serve customers
who may choose to purchase power from LADWP under this
bill but would no longer need. Depending on the amount
of power procured by DWR, this may or may not be a
problem.
5.How Much Power Does LADWP Have? According to the City of
Los Angeles, LADWP has the capacity to produce about
3,400 MW of power daily, but its average load within its
service territory is about 1,700 MW per day.
6.LADWP Power Pricing Policies . In a February 16 letter to
the chairwoman of the Senate Energy, Utilities, &
Communications Committee, LADWP outlined its wholesale
pricing policies as follows:
q LADWP sells its native load customers the least
expensive power it can produce. All of the output of
the hydroelectric, coal, and nuclear generating units
is consumed by the native load, leaving the more
expensive natural gas-fired units available for sale
in the wholesale market.
q Since early in 2000, LADWP has had a policy of
selling its excess generating capacity to California
first. In fact, during any Stage 1, 2, or 3 alert
called by the Independent System Operator (ISO), LADWP
sells only to entities inside the state.
q The LADWP pricing methodology for wholesale trading
has always been cost-based for sales in California and
market-based for sales outside of California.
q LADWP doesn't sell energy to the state at prices
where it will be forced to take a loss. Its bids are
based on its costs, which include the price of natural
gas, the cost of buying emissions credits, the cost
for the transmission tariff, the cost for starting up
a unit, and the cost of maintaining the unit.
q The prices bid to the state vary based on the
advance notice given by the state.
q DWP's highest prices (in February) were when LADWP
used its Castaic pumped storage facility.
7.What Is DWR Buying Power At & What Is LADWP Selling It
For? DWR has declined to release information on the
individual or average power costs it's incurring. LADWP
has also declined to release information on how much it's
selling power to the state for today. In its February
16, 2001 letter to the chairwoman of this committee,
LADWP did note "For the last few months, (LA)DWP has sold
energy to the State every day with the average price
being between $200-$450 per Megawatt-Hour."
8.How Many Times Can the Same Power Be Sold? As noted
above, LADWP has chosen - in a Stage 1, 2, or 3 situation
- to sell any excess power it produces to DWR. There are
three bills in this committee that create three other
potential buyers for this same power: AB 54X (Wright)
permits LADWP to sell its excess power to specific
governmental entities, SB 1172 (Kuehl) permits LADWP to
sell that power to specific public and private entities,
and SB 8X (Alarcon) permits LADWP (or any other municipal
utility) to sell that power to communities that choose to
aggregate their power purchases.
ASSEMBLY VOTES
Assembly Floor (71-1)
Assembly Energy Costs and Availability Committee(17-0)
POSITIONS
Sponsor:
Los Angeles County Board of Supervisors
Los Angeles Community College District
Support:
City of Los Angeles
Oppose:
None on file
Randy Chinn
AB 54X Analysis
Hearing Date: May 8, 2001