BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 18X - Escutia Hearing
Date: April 24, 2001 S
As Introduced: January 25, 2001 FISCAL B
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DESCRIPTION
This bill assigns specific supply resources to "core" and
"non-core" customers for each investor-owned utility (IOU).
Specifically, this bill:
1.Defines core customers as those with peak demand under
500 kilowatts (kw).
2.Defines non-core customers as those with peak demand of
500 kw or greater.
3.Requires the establishment of a portfolio to serve core
customers composed of IOU-retained generation and IOU
contracts, plus any spot market supplies needed to match
core load.
4.Requires that non-core customers be provided power
exclusively from the spot market at the IOU's procurement
cost.
BACKGROUND
As a general approach to utility service, the
"core/non-core" concept is derived from natural gas
service, where customers are divided into core and non-core
classes. Gas utilities are required to procure and deliver
a portfolio of gas supplies sufficient to serve their core
(residential and small commercial) customers. Non-core
customers must arrange for procurement and transportation
of their own gas supplies. As an alternative to
self-procurement, non-core customers of Southern California
Gas may opt in to the core and Pacific Gas and Electric
offers supply and transportation at its incremental cost.
As part of the restructuring of the electric industry, AB
1890 (Brulte), Chapter 856, Statutes of 1996, authorized
retail customers to purchase energy directly from
suppliers. While customers are allowed to choose alternate
providers of energy, the IOUs' obligation to serve all
customers remains and customers large and small are
entitled to remain with, or return to, bundled IOU service
which includes a rate for energy that is derived from a
blend of IOU-retained generation, power purchase contracts,
and spot market purchases.
Historically, IOU electric customers have been entitled to
the portfolio of supplies procured to serve them without
regard to their size. All customers have enjoyed the
benefits, and endured the detriments, of those supplies,
although smaller customers have paid relatively higher
energy rates. AB 1890 froze these relatively higher energy
rates and also assigned higher per unit transition costs to
smaller customers.
This bill proposes to divide electric customers receiving
bundled IOU service into core and non-core classes using a
demand threshold of 500 kw. The 500 kw level is about 200
times the typical residential customer's demand, covers all
but the largest agricultural customers, and covers a fairly
large commercial customer. About 70% of the state's
electricity consumption is attributable to customers under
500 kw.
The intent of the bill is to return core customers to
pre-deregulation IOU service, where they are served by a
blend of IOU-owned and California Public Utilities
Commission (CPUC)-regulated generation and fixed-price
contracts, such as those with qualifying facilities. The
idea is to provide a relatively stable cost of electricity
in the range of historic IOU rates and insulate core
customers from the volatility of market-based rates.
Under the bill, non-core customers would be served entirely
by market-based rates and would either pay the IOU's cost
of procuring for them as a straight pass through, or
negotiate their own supply deal directly with the producers
selling into the spot market.
COMMENTS
1)Is this a one-way commitment? Under current market
conditions, the IOUs' core portfolios look favorable
compared to market rates. A few years ago, the market
looked more favorable than the IOUs' core portfolios. A
few years from now, the market may once again look more
favorable.
If core customers are awarded the core portfolio now, the
author and committee may wish to consider whether core
customers should be allowed to depart for direct access
or other supply alternatives if and when the market
produces favorable rates.
The effect of this bill is to create a smaller ratepayer
base to absorb the costs of the core portfolio. The
departure of individual customers from the core will
further decrease the ratepayer base, which at a certain
point, may increase costs for remaining customers.
2)Does this model work for San Diego? Supporters of this
bill suggest the core portfolio provides nearly enough
power to serve core customers if the cut off is at 500
kw. For PG&E and SCE, the combination of retained
generation resources and power purchase contracts
provides about two-thirds of their total load, which is
close to the needs of core customers. However, SDG&E's
core portfolio provides only about one-third of its total
load, subjecting a substantial portion of core customers'
procurement needs to the spot market.
The fact that SDG&E's core portfolio is insufficient to
serve the customers designated core under this bill would
seem to place SDG&E's core customers at a relative
disadvantage to PG&E and SCE customers. An alternative
that equalizes the benefits of core service is to combine
the core portfolios of all 3 IOUs into a single
portfolio. This alternative raises its own equity issues
in that it diminishes the benefits for PG&E and SCE core
customers.
3)Who's entitled to the core portfolio? While small
customers argue they've paid for a greater proportion of
IOUs' historic investments than large customers, the
basis for awarding the core portfolio entirely to
customers under 500 kw is unclear.
Large customers opposed to the core/non-core proposal say
they've helped to pay for the assets and that there is no
functioning retail market to serve as an alternative to
bundled IOU service.
The author and committee may wish to consider whether all
customers, regardless of size, should be allowed to opt
for the core portfolio. If this approach is taken,
customers who commit to the core portfolio should not be
permitted to freely opt out of the core when market
conditions improve.
If, in light of adverse market conditions, virtually all
current IOU customers opt to be served by the core
portfolio, this bill won't have a substantive benefit for
core customers. However, if some customers elect to stay
out of the core because they intend to take advantage of
future market opportunities, those customers who commit
to the core portfolio will receive a benefit.
POSITIONS
Sponsor:
Author
Support:
Congress of California Seniors
The Foundation for Taxpayer and Consumer Rights
Oppose:
San Gabriel Valley Water Association
Lawrence Lingbloom
SB 18X Analysis
Hearing Date: April 24, 2001