BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN AB 117 - Migden Hearing Date: June 25, 2002 A As Amended: June 19, 2002 FISCAL B 1 1 7 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 (opt-in 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 a general exception to the direct access suspension for community aggregation undertaken by cities and counties serving their own residents. This bill changes 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. This bill contains provisions to ensure cost recovery from departing customers. Existing law requires IOUs to collect a non-bypassable surcharge in the distribution component of rates to fund public purpose programs, including energy efficiency and conservation activities. This bill requires the IOU to direct a proportional share of its energy efficiency activities to the community aggregator's territory. Existing law requires non-IOU electric service providers (ESPs) to register with the CPUC, but only if they serve residential and small commercial customers. This bill requires all ESPs to register with the CPUC. 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. Opt-in community aggregation, wherein the governing body of the community, such as the city council, chooses an electricity supplier for the entire community, was discussed but ultimately tabled during the AB 1890 debates. This bill resurrects that concept by permitting the governing body to select a provider of electricity which then becomes the default provider for everyone in the community. AB 1X, as part of the structure to authorize DWR to purchase electricity for utility customers, authorized the CPUC to prohibit additional direct access (including community aggregation). 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. The public goods surcharge and accompanying programs were established initially by AB 1890 and extended by SB 1194 (Sher), Chapter 1050, Statutes of 2000 and AB 995 (Wright), Chapter 1051, Statutes of 2000. The public goods surcharge is a per-kilowatt-hour fee paid by all electric customers to fund four public goods categories: 1) energy efficiency; 2) renewable energy sources; 3) research and development of alternative energy supplies; and 4) assistance to low-income customers. The law requires the IOUs to spend specific amounts of money or percentages of money from the baseline year 1994, in each of the first three categories, while the fourth, the low-income assistance program, is a needs-based program. Because the public goods surcharge is collected in the distribution component of rates and is non-bypassable, customers purchasing electricity from a community aggregator would continue to pay the public goods surcharge to their IOU. COMMENTS 1)Opt-in vs. opt-out . Under current law, cities, counties, special districts, public agencies, and private individuals and businesses can aggregate their electric loads on a voluntary basis, provided that each customer "opts in" to the system. Like other direct access service, new aggregation arrangements have been suspended by the CPUC. This bill changes the burden on the individual customer because it permits cities and counties to aggregate the load for every customer within their jurisdiction and requires the individual customer to "opt-out" if he or she wants to continue buying power from the applicable IOU. While individual consumers, so long as they receive adequate disclosure, bear some obligation for understanding the risks, the opt-out change also places a high consumer-protection burden on city or county officials, who will be representing their constituents in an unregulated electricity market not well known for its emphasis on the needs of consumers. While they are accountable to voters for their successes or failures, many will not have the level of sophistication in the electricity business as a CPUC-regulated utility or a municipal electric utility. 2)From each according to consumption, to each according to?"proportional share." This bill requires an IOU to direct a "proportional share" of its energy efficiency activities to the territory of a community aggregator. Unlike a municipal utility, community aggregators have no means to collect a public good surcharge on their own, so, like individual direct access customers, they will rely on the funds collected and spent by the IOU on programs designed by the IOU and approved by the CPUC. This bill introduces the concept of a particular group of customers, in this case a city or county, being entitled to a proportional share. "Proportional share" is not defined, but since the public goods surcharge is assessed according to electricity consumption, the proportional share would likely be determined according to consumption as well, rather than other factors such as population or geographic area. This represents a departure from the current "public good" philosophy (whether this philosophy works in practice in another matter) by entitling certain communities to services according to what their customers pay, rather than what they need. The author and committee may wish to consider amending the bill to clarify what the share of energy efficiency activities is proportional to and to allow a community to receive more or less than a proportional share if the CPUC finds that a "non-proportional" allocation would be more cost-effective. 3)Related legislation. AB 80 (Havice), approved by this committee on June 11 and pending in the Senate Appropriations Committee, establishes an exemption from the direct access suspension which would authorize two cities (Cerritos and San Marcos) to act as community aggregators and provide direct access service to their residents. AB 9XX (Migden), approved by this committee on August 29, 2001 and vetoed by the Governor on October 14, 2001, changed the procedures governing community aggregation in the same way as this bill, but contained more general provisions intended to ensure cost recovery from departing customers. According to Governor's veto message, "rapid growth in direct access necessitates more concise cost-containment provisions for the remaining IOU customers than those contained in (AB 9XX), and those provisions should apply to all direct access contracts." The cost-containment provisions in this bill are agreeable to the Administration and essentially identical to those adopted by this committee for AB 80. ASSEMBLY VOTES Assembly Floor (73-0) Assembly Appropriations Committee (20-0) Assembly Business and Professions Committee(12-0) POSITIONS Sponsor: Author Support: California Public Interest Research Group California State Association of Counties City of Berkeley City of Corona Joint Powers Authority City of Culver City East Bay Municipal Utility District League of California Cities Pacific Area Communications Pacific Gas and Electric Company (if amended) An individual Oppose: Southern California Edison Lawrence Lingbloom AB 117 Analysis Hearing Date: June 25, 2002