BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 32X - Alpert Hearing Date:
May 8, 2001 S
As Introduced: February 5, 2001 FISCAL B
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DESCRIPTION
Under existing law , energy rates for customers of San Diego Gas
and Electric (SDG&E) are capped at 6.5 cents per kilowatt hour.
This bill would require SDG&E to provide the "economic value" of
this rate cap to direct access customers (customers purchasing
energy from other providers).
This bill also contains a statement of intent that direct access
customers in SDG&E territory not be discriminated against.
BACKGROUND
Because SDG&E recovered its stranded costs earlier than
expected, the rate freeze established by AB 1890 (Brulte),
Chapter 856, Statutes of 1996, ended for its customers in July
1999. As a result, SDG&E customers were directly exposed to
wholesale energy prices as they rose to unprecedented levels
last summer.
In response, AB 265 (Davis), Chapter 328, Statutes of 2000,
established a 6.5 cent/kwh cap for the energy portion of SDG&E's
residential, street lighting and small commercial customers
(those with demand under 100 kilowatts). The rate cap was
applied retroactively to June 1, 2000 and extends until December
31, 2002, although the California Public Utilities Commission
(CPUC) may extend it until December 2003. The CPUC may also
adjust the capped rate if it finds an adjustment is in the
public interest.
SDG&E's energy purchase costs in excess of the capped rate
accrue in a "balancing account" and are credited against other
SDG&E revenue sources, such as retained generation. SDG&E is
authorized to collect from its customers reasonable costs which
are not offset by other revenues.
Pursuant to AB 1X (Keeley), Chapter 4, Statutes of 2001, the
Department of Water Resources (DWR) is now purchasing energy on
behalf of SDG&E. As a result, SDG&E is no longer contributing
unrecovered energy purchase costs to its balancing account.
These costs are being incurred by, and will be collected by, DWR
SB 43X (Alpert), Chapter 5, Statutes of 2001, has since extended
the 6.5 cent rate cap to all other SDG&E customers, retroactive
to February 7, 2001. For these customers, the rate cap extends
until the rate freeze established by AB 1890 ends for Pacific
Gas and Electric and Southern California Edison customers.
Direct access customers, whether located in SDG&E territory or
areas served by other investor-owned utilities (IOUs), have not
been protected by the initial rate freeze or the subsequent rate
caps established for SDG&E customers. The energy rate for these
customers is established through voluntary agreements with their
direct access providers.
This bill would require SDG&E to provide the economic value of
the 6.5 cent cap to direct access customers through a credit on
their bills. In the context of the bill, it appears that the
credit would apply to residential and small commercial customers
in SDG&E territory, although the language is not specifically
limited to these, and could be read to apply to any direct
access customer.
COMMENTS
1.Bill requires SDG&E to subsidize direct access providers.
According to the author, this bill is intended to provide the
benefit of the rate cap to direct access customers in San
Diego. However, the benefits delivered to direct access
customers and their providers come at the expense of SDG&E,
effectively forcing SDG&E to indefinitely subsidize rates
charged by competing energy providers.
For example, if a direct access provider sells energy at
contract rate of 8.5 cents/kwh, SDG&E would have to provide
the customer a 2 cent/kwh credit, while the provider collects
the full 8.5 cents. Or, if the direct access rate is 25
cents/kwh, SDG&E would have to provide an 18.5 cent credit,
which is passed on to the provider. While customers would be
indifferent (receiving a net rate of 6.5 cents no matter
what), direct access providers could reap unearned profits at
SDG&E's expense.
A more evenhanded method to achieve the author's intent would
be to require each direct access provider to shoulder the
under-collection associated with serving its customers at a
6.5 cent rate. However, since this would be a losing
proposition for direct access providers, and they have no
obligation to serve their customers, the likely result would
be the return of all direct access customers to SDG&E.
2.San Diego's direct access customers are not uniquely
disadvantaged. SDG&E customers were placed in a unique
situation last summer, which justified a unique response.
They were the only IOU customers forced to pay unregulated
market rates, with no regulated rate alternative. However,
there is not a similar basis for distinguishing direct access
customers in San Diego from the rest of the state.
Like direct access customers in the rest of the state, San
Diego customers who have chosen to leave bundled service are
not protected by regulated energy rates. For better or worse,
they have chosen a market-based option. If they don't like
the rates charged by their provider, they are free to return
to bundled SDG&E service.
If the Legislature chooses to provide a regulated rate to
direct access customers, fairness demands that such a rate be
applied statewide. Again, as noted above, unless the direct
access providers are subsidized, the likely effect of this
would be to drive them out of business.
3.If direct access customers don't get the rate cap, they
shouldn't be charged as if they have. Direct access customers
in SDG&E territory have raised a legitimate issue with respect
to their treatment under the rate cap established by AB 265.
Those customers who return to SDG&E service are concerned
that, when the time comes to pay off SDG&E's balancing
account, they will be charged as if they had been served by
SDG&E all along (i.e. since June 1). Because direct access
customers have not received the benefit of the rate cap, they
should not be charged for SDG&E's cost of providing energy
under the rate cap.
This issue was not specifically addressed in AB 265 or SB 43X,
and has not been addressed by the CPUC. The author and the
committee may wish to consider , instead of attempting to cap
rates for direct access customers, simply amending the bill to
clarify the extent of these customers' liability for SDG&E's
under-collection. This could be accomplished by stating that
customers who have been served by a direct access energy
provider and return to SDG&E service during the term of the
rate cap are liable only for the energy provided by SDG&E
under the capped rate.
Suggested amendment to Section 332.1 (c), replacing existing
provisions of the bill (Page 3, line 8 of the bill):
"For any residential or small commercial customer who has
purchased energy from a provider other than the San Diego Gas
and Electric Company on or after June 1, 2000, any cost
recovery authorized pursuant to this section shall be adjusted
to ensure that the customer does not pay the San Diego Gas and
Electric Company for energy it has not purchased from the San
Diego Gas and Electric Company."
4.Technical amendment. SB 32X was drafted prior to enactment of
SB 43X. Both amend Public Utilities Code Section 332.1. As
such, SB 32X would chapter out SB 43X. To avoid this, SB 32X
needs to be amended to reflect Section 332.1, as amended by SB
43X.
POSITIONS
Sponsor:
Author
Support:
Green Mountain Energy Company
1 individual
Oppose:
None on file
Lawrence Lingbloom
SB 32X Analysis
Hearing Date: May 8, 2001