BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 43X|
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UNFINISHED BUSINESS
Bill No: SB 43X
Author: Alpert (D), et al
Amended: 4/04/01
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
SENATE FLOOR : 33-3, 3/8/01
AYES: Alarcon, Alpert, Battin, Bowen, Brulte, Burton,
Chesbro, Costa, Dunn, Escutia, Figueroa, Johannessen,
Johnson, Karnette, Kuehl, Machado, Margett, McPherson,
Monteith, Morrow, O'Connell, Ortiz, Peace, Perata,
Polanco, Poochigian, Scott, Sher, Soto, Speier,
Torlakson, Vasconcellos, Vincent
NOES: Ackerman, McClintock, Oller
SUBJECT : Electric power
SOURCE : Author
DIGEST : This bill reduces rates for large industrial
customers of the San Diego Gas & Electric Company.
Assembly amendments recast and reclarify provisions of the
bill without changing the intent.
CONTINUED
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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
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 reduces rates for large industrial customers of
San Diego Gas & Electric Company (SDG&E). Specifically,
this bill:
1.Requires the CPUC to establish an initial frozen rate of
$.065 per kilowatt hour (kWh) for all SDG&E customers not
subject to Public Utilities Code Section 332.1(b).
2.Requires CPUC to consider the comparable energy
components of rates for comparable customer classes by
Pacific Gas & Electric (PG&E) and Southern California
Edison (SCE), if it determines it to be in the public
interest and to increase rates to a statewide average
level if it deems necessary. Any such rate increase
would be retroactive to the date rate increases ordered
in the March 27, 2001, CPUC decision becomes effective.
3.Prohibits any retroactive recovery of undercollections by
any investor-owned utilities (IOUs).
Comments
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This bill removes large industrial customers of SDG&E from
the peril of market rates. Large industrial customers are
the only remaining customer class of SDG&E subject to
market rates for electricity after enactment of SB 265.
This bill provides for a rate freeze for this remaining
customer class retroactive to the date of the State
Department of Water Resources (DRW) began to purchase
electricity for California. The retroactive provision is
dated back to February 7, 2001, and any undercollection
resulting from the new rate will be provided for by bill
credit from SDG&E to its customers going forward. The
payments forwarded from SDG&E to DWR from the effective
date of this bill will be net of the rate adjustment, but
no amount shall flow from DWR to SDG&E.
Section 332.2 of this bill specifically mandates that no
IOU shall receive any retroactive recovery of
undercollections associated with the rate freeze. This
should encourage CPUC to develop an appropriate energy rate
component going forward to minimize any undercollection to
DWR.
This bill modifies the payment provisions of SDG&E to DWR
with regard to pass through and undercollection associated
with the rate freeze. This is necessary because the energy
rate component of these payments will change with the
effectiveness of the new rate and will be net of amounts
already overpaid by customers. This bill does not modify
the electric procurement obligations of DWR pursuant to any
contract or agreement in accordance with the Water Code
provisions.
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
was passed directly through to retail customers. In the
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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
operation (which no longer includes the cost of acquiring
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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.
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
SUPPORT : (Verified 4/04/01)
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
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NC:kb 4/04/01 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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