BILL ANALYSIS
AB 2523
Page A
Date of Hearing: April 15, 2002
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick D. Wright, Chair
AB 2523 (Canciamilla) - As Introduced: February 21, 2002
SUBJECT : Electrical corporations: rate.
SUMMARY : Orders electric utilities to refund to ratepayers
money recovered through litigation against electric or natural
gas suppliers and marketers who charged excessive costs.
Specifically, this bill :
1)Requires the California Public Utilities Commission (PUC) to
establish, for the accounting purposes of the electrical
corporations, a Ratepayer Benefit Account, (the Account) with
separate accounts for each electrical corporation serving more
than 100,000 customers.
2) Requires all funds recovered by an electrical corporation,
from any litigation or regulatory agreement, concerning
excessive prices for electricity or gas charged by electric
power generators, suppliers, and marketers, for periods ending
January 18, 2001, to be credited to the Account.
3)Directs PUC to require the electrical corporation to allocate
moneys credited to a subaccount to ratepayers as a rate refund
when the subaccount exceeds an amount over $10,000,000.
4)Instructs PUC to impose a rate reduction for customers
according to the same proportion as the class percentage
electric rate increases that were adopted by PUC concerning
Pacific Gas & Electric Co. (PG&E) and Southern California
Edison (Edison) in 2001.
5)Provides that if PUC determines that the revenue requirement
of an electrical corporation should be reduced, PUC shall
impose a corresponding rate reduction, proportional to the
class percentage electric rate increases adopted by PUC in
2001.
EXISTING LAW authorizes PUC to establish rates for electrical
corporations.
FISCAL EFFECT : Unknown.
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COMMENTS :
The perilous financial condition of the California
investor-owned utilities (IOUs) developed as a result of the
escalating debts they incurred. They purchased electricity at
high wholesale prices through the California Power Exchange (PX)
and the California Independent System Operator (ISO) during the
summer and fall of 2000, while operating under a frozen
retail-rate structure.
Spot prices for natural gas spiked dramatically during this same
time period. In recent complaints filed with the Federal Energy
Regulatory Commission (FERC), California regulators<1> allege
that, since many electricity generators purchase natural gas
from an affiliate, the gas affiliate often began charging the
generating affiliate an inflated price during this time,
regardless of the actual cost of the natural gas. The
generators allegedly defended their high electricity prices on
account of high natural gas costs, retaining the excess profits
garnered by this practice.
By January 2001, Moody's Investors Service and Standard & Poor's
had lowered the credit and debt rating of Edison to near junk
status, and the credit rating of PG&E to junk status. On
January 18, 2001, Department of Water Resources (DWR) became the
default provider of electricity to consumers in the state, in
place of IOUs. On April 6, 2001, PG&E filed for Chapter 11
Reorganization in U.S. Bankruptcy Court.
In May 2001 PUC approved a 3.5-cent/kWh rate increase to provide
revenue to cover the costs incurred by DWR in assuming net power
purchase costs of IOUs. PUC decision, and statutory provisions
of AB X1 1 (Keeley) prohibit PUC from imposing electric rate
increases for residential consumption below 130 percent of the
customer's baseline<2> level, medical baseline customer usage,
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<1> The Electricity Oversight Board (EOB) and PUC
<2> On April 9, 2002, PUC adjusted baseline levels for most of
PG&E's 4.5 millions residential customers. Beginning May 1,
baseline usage quantities will increase for the summer season
from one to 16 percent.
AB 2523
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and for the California Alternate Rates for Energy (CARE)<3>
customers.
Author's intent
The author voices a concern that the exemptions in the rate
increase shifted the burden to residential users consuming above
130% of baseline, and to commercial and industrial users. Thus,
while the rate increase for a few residential customers was
considerable, large commercial and industrial user rates
increased between 40% to more than 70%.
Because the current rate structure does not contemplate the
possibility that refunds may accrue on the electricity for which
the rate increase are paying. This bill is intended to provide
policy guidance to PUC that refunds should be allocated to
affected customers in proportion to the manner in which the
burden was assumed. Further, because revenue requirements of
the utilities have diminished since 2001 when rate increases
were approved, PUC may need to act to reduce rates, which should
also be done on an equitable, proportionate basis.
Refunds
In March 2001, FERC issued a limited refund order, outlining
potential refunds for the month of January 2001. Refund
eligibility, in that initial order, was confined to transactions
that had taken place while ISO had declared a Stage 3 system
emergency. FERC established a threshold for potential refunds
based upon a proxy market clearing price, calculated by FERC,
which is based on the hypothetical operating cost of an
expensive generating facility operating on the margin in
California. The hypothetical operating cost included the
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<3> Income eligibility level for the CARE program is 175% of the
federal poverty guidelines, and the rate discount for CARE
customers is 20%.
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published price indexes for RECLAIM<4> trading credits, and
daily natural gas costs.
Wholesale public utility sellers bidding above that price
receive their actual bids, but are subject to monitoring and
reporting requirements to ensure that rates remain just and
reasonable, including the potential for having to pay refunds
for prices charged above the breakpoint.
In its April 2001 order, FERC extended refund eligibility for
additional months, and covering all hours during which ISO
operated under emergency conditions (Stage 1, 2 and 3
conditions), when reserves fall below 7.5%.
FERC has ordered refunds for spot purchases made between October
2000 and June 2001, but no FERC-ordered refund liability applies
to long-term contracts negotiated during this time frame.<5>
Are substantial refunds recoverable?
In commenting on a FERC market mitigation proposal, ISO alleged
in March 2001 that potential costs in excess of competitive
levels for the California wholesale market exceed $6 billion for
the period May 2000 through February 2001, $1.8 billion
occurring prior to October, 2000.
As noted above, ISO insists that approximately $2.7 billion of
its $6.7 billion in estimated overcharges represents contract
and self-supplied energy scheduled outside of PX and ISO
markets, but FERC refunds are limited to transactions conducted
through PX or ISO during emergency conditions.
Of the remaining $4 billion, approximately $3.1 billion is
subject to FERC jurisdiction, but much of it pertains to
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<4> The South Coast Air Quality Management District established
RECLAIM in 1994. Under RECLAIM, power plants and other
stationary sources of pollution are given emission allowances,
or credits. To attain NOx emission reductions of 80% by 2003,
credits are gradually cut. When emissions exceed credits,
companies must buy them from those who have cut emissions below
their allowance, installed NOx controls, or switched to cleaner
fuels. Electricity demand in 2000 caused electric generators in
the South Coast area to generate more power. They bought huge
quantities of RECLAIM trading credits. Many have not installed
emission control equipment that could reduce the need for
additional credits. According to the California Energy
Commission, the price of credits rose from $1/pound of NOx in
January 2000 to nearly $50/pound of NOx in August 2000.
<5> The California Public Utilities Commission and the
Electricity Oversight Board allege in complaints filed with FERC
in February 2002 that FERC-ordered refund liability should
extend to long-term contracts. PUC and EOB contend that DWR is
entitled to refunds because the long-term contracts cost
Californians nearly $13 billion dollars in excess of what the
energy and capacity should have cost in a competitive market.
AB 2523
Page E
transactions occurring in months that are not subject to refund
under FERC order.
FERC's refund mechanism only scrutinizes transactions that
occurred during emergency conditions, and on bids in excess of a
$273 proxy market clearing price. Nevertheless, FERC's refund
calculation for January and February 2001 refunds exceeds $120
million.
A FERC administrative law judge is now overseeing legal
arguments on California's demand for $8.9 billion in wholesale
power refunds for October 2000 through June 2001. FERC recently
announced a new schedule that contemplates a decision on refunds
in September or October 2002.
In March of this year, Attorney General Bill Lockyer launched a
new refund case at FERC seeking up to $2.8 billion in additional
electricity refunds.
Rate Reductions
This bill also requires any future rate decreases adopted, to
more closely match current revenue requirements, be allocated
proportionately among customer classes affected by the 2001 rate
increase order. Current PUC-approved rates of PG&E and Edison
provide for recovery of revenue that exceeds current revenue
requirements of both utilities by approximately 2.5 cents/kWh.
Amendments
Sempra Energy requests that the author amend this bill to apply
the proportionate refund allocation to San Diego Gas & Electric
customers, in addition to those of PG&E and Edison.
The author intends that any refunds that accrue be paid back to
those who paid the rate increases, but Sempra Energy asks the
author and the Committee to further clarify that intent in this
bill with a technical amendment re-stating that intention.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
AB 2523
Page F
Opposition
None on file.
Analysis Prepared by : Paul Donahue / U. & C. / (916) 319-2083