BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 39X - Speier
Hearing Date: February 22, 2001 S
As Introduced: February 8, 2001 FISCAL B
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DESCRIPTION
This bill seeks to clarify and enhance the state's
regulatory authority over in-state electric generation
facilities. Specifically, this bill:
1.Repeals a provision of AB 1890 that states ownership of a
wholesale generator does not necessarily make the owner a
"public utility." The effect of this is to subject these
generators to the "jurisdiction, control, and regulation"
of the California Public Utilities Commission (CPUC), to
the extent permitted by federal law.
2.Requires the CPUC to ensure that generators are operated
in a manner that ensures their availability to maintain
reliability, and authorizes the CPUC to prohibit economic
and physical withholding of power to accomplish such
operation.
3.Authorizes the CPUC to prescribe inspection, maintenance
and operating procedures for generators to ensure public
health and safety and reliability.
BACKGROUND
The federal Public Utility Holding Company Act of 1935
(PUHCA) authorized the Securities and Exchange Commission
(SEC) to monitor public utility holding companies to
protect consumers and investors. At the time of PUHCA's
passage, it was found that the activities of holding
companies engaged in interstate commerce affected the
public interest, but were not effectively regulated by
state utility commissions.
The sentiment of the time is best expressed in PUHCA's
policy declaration:
When abuses? become persistent and wide-spread
the holding company becomes an agency which,
unless regulated, is injurious to investors,
consumers, and the general public; and it is
declared to be the policy of this chapter? to
meet the problems and eliminate the evils as
enumerated in this section, connected with
public-utility holding companies which are
engaged in interstate commerce or in activities
which directly affect or burden interstate
commerce; and for the purpose of effectuating
such policy to compel the simplification of
public-utility holding-company systems and the
elimination therefrom of properties detrimental
to the proper functioning of such systems, and to
provide as soon as practicable for the
elimination of public-utility holding companies
except as otherwise expressly provided in this
chapter.
By 1992, sentiments in Congress had changed and PUHCA was
amended to, among other things, exempt purely wholesale
generators owned by public utility holding companies from
SEC regulation.
These exempt wholesale generators (EWGs) are the
enterprises that have acquired most of the natural
gas-fired generation facilities divested by California's
investor-owned utilities (IOUs). They are affiliates of
public utilities from other states, such Duke, Reliant, and
Southern (Mirant), held in common by holding companies.
California IOUs have also established holding companies
which own EWGs, both within California and in other states.
In AB 1890 (Brulte), Chapter 854, Statutes of 1996, EWG
owners were specifically exempted from the definition of a
"public utility" to avoid any suggestion that they would be
subject to CPUC "jurisdiction, control, and regulation" of
public utilities required by Section 216 of the Public
Utilities Code.
The change made by AB 1890 did not itself surrender
regulation of EWGs. It was consistent with the changes to
federal law and regulatory policy which created a merchant
class of generators that could be owned by the holding
company of a regulated utility, but would not itself be
subject to either SEC or state utility commission
regulation.
COMMENTS
1.Will the horse come back to the barn? The bill is
intended to recapture regulatory authority surrendered in
AB 1890 and to authorize the CPUC to use that authority
to regulate matters which are recognized as state
jurisdictional - reliability, health and safety (not
wholesale rates).
It is not clear that undoing the provision of AB 1890,
without concomitant changes to federal law and regulatory
policy, will compel EWGs, which have profited from their
freedom from state regulation, to submit to effective
CPUC regulation. The extent to which the CPUC can
enforce the provisions of this bill may depend on whether
federal authorities, or the courts, agree that these
matters are appropriate for state regulation.
2.Withholding companies? One of the allegations of the
current energy market crisis is that generators have
engaged in economic or physical withholding of power to
increase prices. Economic withholding is when a
generator refuses to sell power at a price acceptable to
the buyer in order to increase the price for a later
sale. Physical withholding is when a generator
deliberately stops generating power in order to increase
the price for a later sale, or for another generator's
sale.
This bill authorizes the CPUC to prevent both economic
and physical withholding in order to prevent "the
exercise of market power." Neither economic nor physical
withholding has a well-established definition or is
defined in the bill. The CPUC will be left the difficult
task of drawing the line between withholding as hard
bargaining and withholding as inappropriate market
manipulation.
Preventing "the exercise of market power" is more likely
a federal, rather than state, jurisdictional issue. The
author and the committee may wish to consider instead
authorizing the CPUC to prohibit withholding to "ensure
reliability."
3.Inspection, maintenance and operation. Another
circumstance of the current energy market crisis is that
California has been plagued by unprecedented generator
outages which have increased prices, undermined
reliability, and have the potential to adversely impact
public health and safety.
Generator outages for planned maintenance are currently
scheduled by the Independent System Operator (ISO). The
ISO does not have the enforcement power of the CPUC, but
as control area operator, it has a unique ability to
monitor unscheduled outages.
This bill authorizes the CPUC to prescribe inspection,
maintenance and operating practices and procedures for
generators. The author and the committee may wish to
consider ensure that the CPUC takes advantage of the
ISO's expertise, rather than attempt to duplicate it, by
requiring the CPUC to consult with the ISO in carrying
out this duty.
4.Executive Order. On February 8, Governor Davis issued
Executive Order D-23-01 relating to generator outages.
The Order required the ISO to obtain planned outage
schedules from generators, prepare a coordinated outage
plan, identify maintenance criteria and establish
performance benchmarks for generators. The ISO is
currently in the process of implementing the Order.
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
None on file
Lawrence Lingbloom
SB 39X Analysis
Hearing Date: February 22, 2001