BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 43X|
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THIRD READING
Bill No: SB 43X
Author: Alpert (D), et al
Amended: 3/8/01
Vote: 27 - Urgency
SENATE ENERGY, U.&C. COMMITTEE : 6-0, 2/22/01
AYES: Bowen, Alarcon, Battin, Dunn, Sher, Speier
SENATE APPROPRIATIONS COMMITTEE : 11-0, 3/5/01
AYES: Alpert, Battin, Bowen, Burton, Johannessen, Johnson,
Karnette, McPherson, Perata, Poochigian, Speier
SUBJECT : San Diego Gas and Electric Company: rates
SOURCE : Author
DIGEST : This bill extends the existing rate freeze of
$0.65/kwh that applies to San Diego Gas & Electric
Company's residential, small and medium commercial (less
than 100 kwh), and street lighting customers, to all other
customers, effective February 7, 2001, as specified.
ANALYSIS : Current law requires the California Public
Utilities Commission (CPUC) to establish a rate ceiling of
$0.65/kwh for the energy portion of electric bills for
residential, small and medium commercial (less than 100
kwh), 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
CONTINUED
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the CPUC finds those charges to be "prudent and
reasonable." Charges which are not 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
$0.65/kwh for the energy portion of electric bills to all
other SDG&E customers, retroactive to February 7, 2001,
until the end of the rate freeze for the PG&E Company and
the Southern California Edison Company. It also permits
the CPUC to extend that frozen rate if it finds it to be in
the public interest. In making that determination, the
CPUC is required to compare the energy component rate for
large commercial and non-core customers of PG&E Company and
Southern California Edison Company to the frozen rates for
the same class of customers in SDG&E. Additionally, the
bill requires CPUC to adjust the California Procurement
Adjustment and the Fixed Department of Water Resources
Set-Aside in accordance with certain provisions.
The bill also clarifies that the amounts necessary to
reimburse the State Department of Water Resources for any
undercollection of the department's acquisition costs shall
be included as a revenue requirement as defined in AB 1X
and therefore recoverable.
Background
San Diego Price Cap Instituted
In 1999, the CPUC determined that SDG&E had collected the
money necessary to pay off all its stranded costs as
permitted under AB 1890 (Brulte), Chapter 854, Statutes of
1996, thereby eliminating the statutory frozen rate it
could charge its customers for energy.
As a result, the deregulated wholesale price of electricity
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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 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 State 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
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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 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 kwh) will
owe DWR at some point in the future.
SDG&E's largest customers represent less than 0.4 percent
of the utility's total number of customers, but those
businesses account for 39 percent of the total electricity
used in SDG&E's service territory.
The energy portion of the SDG&E bill is capped at
$0.65/kwh. The comparable number for PG&E customers is
approximately the same, while for SCE customers it's closer
to $0.07/kwh.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee analysis:
DWR is currently purchasing about 63 percent of SDG&E's
load, or roughly 10.7 billion kwh annually, of which about
61 percent represents customers subject to the existing
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rate freeze. It is likely that extending the rate freeze
to the remaining 39 percent, or 4.1 billion kwh, will
result in decreased reimbursements (from ratepayers for
energy consumption) of an unknown, but potentially
significant, amount. For illustrative purposes, if DWR
purchased power at $0.020/kwh, the difference
(reimbursement loss) of $0.015 on 4.1 billion kwh would be
$615 million annually (as long-term contracts are secured,
the undercollection should be reduced). However, AB 1X
requires CPUC to establish rates sufficient to cover DWR's
"revenue requirements" (costs). Therefore, any
reimbursement loss resulting from this bill initially
should be recovered through CPUC's ratemaking authority.
CPUC staff indicate they may need two staff positions to
comply with the provisions of this bill. It is unclear
whether these staff positions would be needed beyond
2001-02.
SUPPORT : (Verified 3/5/01)
San Diego Gas & Electric Company
San Diego County Supervisors
Utility Consumers' Action Network (UCAN)
Sempra Energy
The Utility Reform Network (TURN)
San Diego Regional Chamber of Commerce
California Restaurant Association
Health Care Group
San Diego Museum of Art
Valley Center Municipal Water District
Sledgehammer Theatre, San Diego
The Globe Theatres
NC:kb 3/7/01 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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