BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 27X - Bowen Hearing
Date: April 17, 2001 S
As Amended: March 28, 2001 FISCAL B
X
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DESCRIPTION
Under existing law established by AB 1X (Keeley), Chapter
4, Statutes of 2001, the right of retail customers of
investor-owned utilities (IOUs) to acquire electric power
service from non-IOU providers (direct access) may be
suspended upon the determination of the California Public
Utilities Commission (CPUC) until the Department of Water
Resources (DWR) no longer procures power for IOU customers.
The CPUC has not yet made this determination.
This bill repeals the direct access provisions of AB 1X and
enacts provisions which allow IOU customers currently
served by DWR to obtain service from alternate power
providers, subject to payment of any outstanding
obligations incurred by DWR to serve the departing
customer.
Specifically, this bill:
1.Clarifies that customers who have not received power
procured by DWR (i.e., existing direct access customers)
will not be subject to the conditions imposed by the
bill.
2.Authorizes the CPUC to limit a customer's right to go to
an alternate provider if necessary to ensure satisfaction
of power purchase or bond obligations incurred by DWR to
serve that customer.
3.Authorizes DWR-served customers to go to an alternate
provider at any time, provided the customer pays DWR for
any uncollected and unavoidable costs attributable to
that customer.
4.Authorizes DWR to impose a fee on direct access customers
who return to IOU service, if the customer's return
results in unavoidable costs that would otherwise be
borne by other customers or taxpayers.
5.Requires each IOU to notify its customers within 90 days
of the conditions imposed by this bill.
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."
AB 1890 and subsequent legislation established certain
consumer protections to prevent unauthorized service
changes, or "slamming." For example, each customer in a
group aggregated by a direct access provider must make a
positive written declaration to be switched from IOU
service. In addition, service changes for residential and
small commercial customers are subject to detailed
confirmation procedures.
To ensure that obligations for the IOUs' historic
investments were not avoided by customers choosing direct
access, AB 1890 provided that these customers would
continue to pay their share of the IOU's transition costs
on a "non-bypassable" basis, according to their
electricity consumption.
Typically, direct access customers continued to pay their
IOU the transmission and distribution portions of their
total bundled rate, as well as transition costs. For the
energy portion of the rate, customers received a credit
equal to the IOU's cost of energy procurement from the
Power Exchange (PX). This amount is known as the "PX
Credit."
As a result of the dramatic increase in wholesale
electricity prices in California last year, the cost of
procurement in the PX began to exceed the non-transmission
and distribution portion of the rate, and often exceeded
the entire bundled rate. This resulted in direct access
customers being owed a monthly PX Credit which exceeded the
other charges on their bill.
Since late last year, many direct access customers have
been returned to default IOU service by their providers as
a result of adverse market conditions and the failure of
insolvent IOUs to pay PX Credits.
AB 1X, as part of the scheme 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, the CPUC was
authorized to prevent additional migration of IOU
customers.
This bill allows customers to leave IOU service, but
ensures the revenue stream by requiring departing customers
to pay DWR for any uncollected costs of serving them.
COMMENTS
1.What are DWR's commitments? DWR's procurement costs and
specific contractual obligations are unknown, but it is a
safe assumption that its procurement costs are higher
than current rates and that DWR has incurred debt for
each customer served since it began procuring power for
IOU customers in January.
For departing customers, DWR has at least two main
financial concerns. The first is the cost of serving
that customer to date. If DWR has securitized
anticipated future rates to cover the cost of buying
power for the customer now, and the customer leaves, the
future rate stream disappears.
The second concern is related to commitments made to
serve that customer in the future, i.e., long-term
contracts. If DWR secures contracts to serve a projected
load, and that load shrinks as a result of customer
departure, DWR may be left with "stranded" contract
obligations. According to a summary of contracts
released on March 15, DWR contracts cover a little more
than one-third of the net short this year, and do not
increase to cover the entire net short until 2004.
If customers are permitted to go to alternate providers
and leave legitimate obligations behind, the remaining
IOU customers will likely have to cover the costs through
rate increases.
2.New or otherwise uncommitted load. It has been suggested
that within the range of load that DWR has not yet
committed to purchase, customers should be able to freely
choose alternate providers. If this increment of
uncommitted load is served by alternate providers, DWR
benefits from a reduction in the amount of power that it
would otherwise have to procure for IOU customers.
However, as noted above, IOU customers who have purchased
power from DWR to date have paid less than DWR's cost,
i.e., current retail rates are lower than market prices
paid by DWR. AB 1X anticipates that, over time, the
market prices will decline and the rates collected from
customers will eventually cover DWR's procurement costs.
Each such customer who is permitted to leave DWR service
before the rates they've paid match DWR's procurement
costs will result in a shift of their unpaid procurement
costs to remaining customers.
3.Should different customers or providers be treated
differently? This bill draws no distinction between
different types of customers or different types of
alternate providers, it simply establishes the authority
for DWR to collect any uncollected obligations from a
customer it has sold power to if that customer elects
service from an alternate provider.
In this case, an "alternate provider" could be any entity
supplying power within the IOU service area, be it an
energy service provider, the customer itself as a new
self-generator, or even a newly-formed electric
co-operative or municipal utility.
Some have suggested that residential customers should be
exempt up to certain percentage of overall load, since
the departure of individual residential customers has
such a small effect on DWR's activities.
Others have suggested that customers who install on-site
generators should be relieved from paying an uncollected
costs to DWR because new generation confers a valuable
system-wide benefit and the payment of an "exit fee" will
discourage investments in on-site generation.
4.Should DWR offer an at-cost option? Under AB 1X, IOU
customers have essentially become unwitting partners in a
debt financing scheme to avoid the astronomical rate
increases that the current market would otherwise demand.
This creates some tough choices for customers who think
they can get a better deal elsewhere.
For customers who intend to leave before the end of the
financing term, an equitable way to avoid incurring debt
that will need to be paid in the form of an exit fee
would be to pay DWR's actual cost for the power it is
procuring on an ongoing basis.
5.Related legislation. AB 21X (Kelley), pending in this
committee, provides for direct access subject to payment
of DWR obligations, similar to SB 27X. AB 21X also
contains many of the exemptions from the DWR obligations
discussed above.
POSITIONS
Sponsor:
Author
Support:
QUALCOMM Incorporated
School Project for Utility Rate Reduction
5 Individuals
Oppose:
Alliance for Retail Energy Markets
USS-POSCO
Lawrence Lingbloom
SB 27X Analysis
Hearing Date: April 17, 2001