BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 43X - Alpert
Hearing Date: February 22, 2001 S
As Introduced: February 9, 2001 FISCAL B
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DESCRIPTION
Current law requires the California Public Utilities
Commission (CPUC) to establish a rate ceiling of $0.065/kwh
for the energy portion of electric bills for residential,
small and medium commercial (less than 100 kw), and street
lighting customers of San Diego Gas and Electric Company
(SDG&E).
The difference between SDG&E's actual energy costs and the
rate ceiling are tracked and recoverable from ratepayers if
the CPUC finds those charges to be "prudent and
reasonable." Charges which aren't prudent and reasonable
will be the responsibility of the SDG&E or, potentially,
the wholesale sellers of electricity. If the CPUC
determines that raising the ceiling is in the public
interest and it completes a specified proceeding, the CPUC
may raise the ceiling, thereby reducing the undercollection
to be recovered in the future. The ceiling is effective
through December 31, 2002 and may be extended for an
additional year if the CPUC finds extending it is in the
public interest.
This bill requires the CPUC to extend a rate freeze of
$0.065/kwh for the energy portion of electric bills to all
other SDG&E customers, retroactive to February 7, 2001,
through December 31, 2002. It also permits the CPUC to
extend that frozen rate for an additional year if it finds
it to be in the public interest.
BACKGROUND
San Diego Price Cap Instituted
In 1999, the CPUC determined that SDG&E had collected the
money necessary to pay off all of its stranded costs as
permitted under AB 1890 (Brulte), Chapter 854, Statutes of
1996, thereby eliminating the statutory frozen rate that it
could charge its customers for energy.
As a result, the deregulated wholesale price of electricity
was passed directly through to retail customers. In the
summer of 2000, wholesale prices soared, causing electric
bills to double or triple in some instances. In response,
the state enacted a retail price cap for small and
medium-sized customers via AB 265 (Davis), Chapter 328,
Statutes of 2000. The cap is set at 6.5 cents/kwh for the
energy portion of the electric bill, though the CPUC is
authorized to raise the cap if, after completing a
proceeding that looks at the reasonableness of SDG&E's
procurement of wholesale energy, it finds raising the cap
is in the public interest. The total cost per kwh for SDG&E
non-CARE customers is 12.9 cents/kwh for baseline amounts
and 14.9 cents/kwh for amounts in excess of baseline.
Winter Wholesale Price Increases
The wholesale electric market deteriorated precipitously in
December 2000, with prices soaring to historic and
previously unimaginable high levels. For example, on a
typical day in December 1999, electricity cost between
$0.02/kwh and $0.04/kwh. In August 2000, when customers of
SDG&E were facing huge electric bills, the price of
electricity jumped to nearly $0.25/kwh. By December 2000,
electricity was selling for over $1.00/kwh at peak times
and, on some days, was never less expensive than $0.62/kwh
even during the dead of night.
These price increases have helped push Pacific Gas &
Electric (PG&E) and Southern California Edison (SCE) to the
brink of bankruptcy. Power generators and marketers in
turn refused to sell electricity to the utilities,
concerned they wouldn't get paid for their costly December
power or their future power sales.
State Moves To Purchase Power
AB 1X (Keeley), Chapter 4, Statutes of 2001, authorized the
state, through the Department of Water Resources (DWR), to
take over from the state's investor-owned utilities (IOUs)
the job of procuring electricity. Under AB 1X, DWR is
authorized to purchase electricity and sell it directly to
end use customers. The CPUC is required to determine the
difference between the utilities' cost of operation (which
no longer includes the cost of acquiring electricity in the
open market) and their actual revenues, as expressed in
rates. This difference is known as the California
Procurement Adjustment (CPA). The CPUC shall determine
what portion of the CPA is allocable to the power sold by
DWR. That amount is known as the Fixed Department of Water
Resources Set-Aside (Set-Aside) and is payable by the
utility to DWR for its costs.
Because DWR is purchasing power on behalf of SDG&E
customers, the growth in SDG&E's balancing accounts (the
difference between the 6.5 cents/kwh rate ceiling and the
actual cost of the power purchased by DWR on SDG&E's
behalf) will slow dramatically. That's because much of the
shortfall between actual power costs and the frozen rate is
owed to DWR, not SDG&E, and will be recaptured from SDG&E
customers.
By extending the existing price freeze to SDG&E's largest
customers, this bill will create an additional, potentially
significant, undercollection. However, this
undercollection won't increase SDG&E's balancing account.
Instead, it increases the amount of money SDG&E's large
customers (those with a demand greater than 100 kw) will
owe DWR at some point in the future.
SDG&E's largest customers represent less than 0.4% of
utility's total number of customers, but those businesses
account for 39% of the total electricity used in SDG&E's
service territory.
The energy portion of the SDG&E bill is capped at
$0.065/kwh. The comparable number for PG&E customers is
approximately the same, while for SCE customers it's closer
to $0.07/kwh.
COMMENTS
Deferring Payments . This bill provides mandatory rate
protection for SDG&E's large customers. A consequence of
this protection is these customers, who are now paying all
their electric costs on a current basis, will be obligated
for future payments of the difference between the frozen
rate and actual electric costs. Under AB 265, the CPUC was
required to establish a voluntary program which capped
rates for the large customers not included in the mandatory
rate cap program. That program was established at the end
of 2000. To date, SDG&E has received only 59 requests for
more information and only 6 companies have actually
requested that they be enrolled in the program.
Are IOU Customers Treated Differently By Territory? Under
current law and under this bill, to the extent that SDG&E's
wholesale power purchase costs are prudent, SDG&E
ratepayers are responsible for covering any difference
between the frozen rate and the actual cost of energy. In
the PG&E and SCE territories, the utilities, not the
ratepayers, are liable for any cost differences (although
this issue is currently the subject of litigation at the
federal court level).
The rate protection provided for SDG&E customers under last
year's AB 265 and under this bill will run through the end
of 2002 or 2003 (should the CPUC decide to extend it for an
additional year). For customers in the PG&E and SCE
service territories, the rate protection is scheduled to
end no later than March 2002 and could end earlier should
the CPUC determine that one or both of the utilities have
paid off their stranded costs.
The different frozen rate levels and duration of the rate
protection for the customers of the three IOUs raises
questions about whether ratepayers across the state are
being treated equally. However, it could be argued that
those equity issues are largely mitigated because any
deferred costs resulting from the frozen rates should be
recovered on a utility-specific basis, so the customers of
one utility won't be subsidizing customers from another
utility. While this isn't specifically articulated in
AB1X, the statute does specifically require the CPA and
Set-Aside to be calculated on a utility-specific basis,
implying that each utility will pay its share of DWR costs.
AB 265 requires the CPUC to open a proceeding to examine
the prudence and reasonableness of SDG&E's procurement of
wholesale energy going back to at least June 1, 2000. This
proceeding, which must be completed before the CPUC may
raise the $0.065/kwh ceiling on energy costs, has commenced
and is expected to be completed by the middle of this year.
Technical Amendment . The author and committee may wish to
consider including a technical amendment to reflect that
the CPUC may change the frozen rate and that such change
should be reflected in the CPA. This amendment could be
accomplished on Page 4, Line 14, by inserting "or as
subsequently adjusted pursuant to (d)," after the word
"hour,".
POSITIONS
Sponsor:
Author
Support:
Sempra Energy
Oppose:
None on file
Randy Chinn
SB 43X Analysis
Hearing Date: February 22, 2001