BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 8X - Alarcon Hearing Date:
May 1, 2001 S
As Amended: April 25, 2001 Non-FISCAL B
X
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DESCRIPTION
This bill finds that public power is one way for customers to
increase their control over energy pricing and supply.
Current law permits individual customers to aggregate their
electric loads on a voluntary basis, provided that each customer
does so by a positive written declaration (opt-in).
This bill permits public agencies to serve as aggregators for
the businesses and residential customers within the territory of
that agency after a majority vote of its elected governing body.
If a customer wishes to be served by someone other than the
entity selected by the public agency, he or she may do so upon
written notice (opt-out) to the public agency pursuant to the
rules established by that agency.
Current law bars a municipal utility from selling electric power
to the customers of an investor-owned utility (IOU), and
vice-versa, unless each utility consents.
This bill allows a municipal utility to sell to customers of an
IOU if the customers of the IOU agree and the municipal utility
provides low-income public benefit programs at least as
beneficial as the IOU. This provision sunsets in 18 months and
is replaced with a provision that permits a municipal utility to
sell electric power to the customers of an IOU, and vice versa,
only if the regulatory body of the utility selling electricity
first finds that such sales won't harm its own customers.
BACKGROUND
In comparison to IOUs (e.g. Pacific Gas & Electric, Southern
California Edison, and San Diego Gas & Electric), municipal
utilities appear to many to be islands of stability, supply
adequacy, and rational prices. This has led to efforts to
encourage municipalization, including SB 23X (Soto), which is
scheduled to be heard today by this committee, and to permit
municipal utilities to serve customers outside of their
traditional service areas.
Municipalization arguably increases local control and may
ultimately help insulate customers from the dysfunctional
wholesale electric market. However, in and of itself,
municipalization isn't a short-term panacea for today's electric
problems.
The concept of community aggregation, wherein the governing body
of the community, such as the city council, could choose an
electric supplier for the entire community, was discussed but
ultimately tabled during the 1996 electric restructuring
debates. This bill resurrects that concept by permitting the
governing body to select a provider of electric service which
then becomes the default provider for everyone in the community.
During those 1996 discussions, the issue of competition between
municipal utilities and IOUs was also discussed. At that time,
the concern was that the IOU's would have lower costs, which
would make it very tough for the municipal utilities to compete.
The shoe now appears to have wound up on the other foot, at
least for the time being.
This two-part bill proposes, via community aggregation, to let
customers band together and shop around, as well as to let those
customers choose to buy power from a municipal utility even if
they're located in an IOU service territory. Nothing in this
bill deals with competition in the distribution of electricity.
Rather, the bill deals with competition in the sense of a direct
access relationship between a municipal utility and customers of
an IOU.
COMMENTS
1.Community Aggregation . The concept of community aggregation
is an attempt to create buying power within a community. By
aggregating a community's buying power, the community will
theoretically benefit by obtaining lower prices and better
service than if individual community members made their own
deals. For example, a city will choose a single garbage
collection company for all its citizens and businesses instead
of allowing every homeowner to go out and contract for garbage
service on their own.
The electricity world today is a seller's market, not a
buyer's market. As such, any benefits of community
aggregation may be hard to realize, at least over the next few
years. As the Department of Water Resources (DWR) continues
to buy power for IOU customers, community aggregators will
likely be subject to the same exit fees as any other direct
access customers, further diminishing any benefits of
community aggregation.
Given that reality and the prospect for a continuing imbalance
over the next several years, the author and committee may wish
to consider whether creating more competing buyers in a
stagnant world of sellers will only serve to bid up the price
people will pay for electricity.
SB 73X (Alpert), which is pending before this committee, deals
with the notion of a "buyer's cartel" to offset the power of a
"seller's cartel," which is how some view the status of
current energy market in California. The notion of a buyer's
cartel is that all buyers would act as one. This bill is
somewhat the antithesis of a buyer's cartel in that while it
allows individuals to join together and form blocks, those
blocks will still be competing against one another to buy
power - a competition that may, in the short term, only serve
to drive up the price for electricity.
2.Opt-In vs. Opt-Out . Under current law, people can aggregate
their electric loads on a voluntary basis, provided that each
customer "opts in" to the system. This bill changes the
burden on the individual consumer because it permits, for
example, a city council to decide to aggregate the load for
everyone within the boundaries of the city and requires the
individual consumer to "opt-out" if he or she wants to
continue buying power from their existing - or another -
provider.
3.Affect On DWR Power Purchases . The second part of the bill
allows municipal utilities to offer service to IOU customers
without letting IOUs provide similar service to municipal
utility customers.
DWR continues to search, on a daily basis, for affordable
electricity to meet the needs of IOU customers. This bill, by
allowing a municipal utility with surplus power to sell to -
for example - city that aggregates its customers, gives the
municipal utility the ability to play DWR and the city off one
another to drive up the price for that power.
No matter which entity winds up buying that power, it appears
that DWR - and its customers - will wind up paying more.
Under one scenario, the municipal utility would stop selling
its supposedly cheaper power to DWR and instead would sell it
to a specific city. In this case, DWR's costs and the costs
for all of its ratepayers would go up because DWR wouldn't
have access to that cheaper power. Under the second scenario,
DWR and the aggregating city would bid up the price of that
municipal power, but because the prices paid for power by IOU
customers are currently frozen, the aggregating city would
logically stop bidding for the power once it hits the frozen
rate. In this case, DWR would wind up with the power, but
it'll be paying more for it than it otherwise would have had
the city not been able to bid up the cost of the electricity.
4.Which Customers Will Be Harmed? Under current law, an IOU has
to agree to allow a municipal utility to come into its
territory to compete and vice-versa. Under this bill, for 18
months, a municipal utility has the ability to unilaterally
decide to offer service to customers in an IOU territory
without having to open its territory to the IOU.
After 18 months, this bill "levels the playing field" by
allowing IOUs and municipal utilities to sell to one another's
customers without requiring the consent of the other utility
if the regulatory body of the utility selling electricity
first finds that such sales won't harm its customers.
This provision opens municipal utility districts to
competition notwithstanding any decision of their local
governing board. This conflicts with one of the benefits of
creating a municipal utility district (the ability of a
locally-created board to control what happens within the
district's boundaries) and runs contrary to the intent
language section of this bill, which states as its goal
increasing access to public power.
Overall, the policy proposed by this bill - both within the 18
month window and after that window closes - will have an
impact on utility customers and the rates they pay, though
it's impossible to tell who the winners and losers will be
over the long terms.
In the short term, with municipal utilities having the ability
to provide power at levels cheaper than the IOUs, it appears
those municipal utilities and the customers they're able to
sign up will be the winners. The losers will be the IOUs, DWR
(which is buying some amount of power for the IOUs), and the
other DWR ratepayers.
However, municipal power hasn't always been cheaper than IOU
power. If the shoe changes feet again and municipal utility
customers choose to aggregate and buy power from an IOU (as
permitted by this bill after 18 months), it's the municipal
utility, its board, and its remaining customers who will wind
up "losing" and will in turn face the prospect of a rate
increase.
5.DWR Costs . To the extent that DWR has contracted for
electricity on behalf of IOU customers, the loss of those
customers to a different provider may result in stranded costs
which DWR will need to collect from the remaining IOU
customers. There has been a consistent effort to ensure that
customer choice doesn't create stranded costs that the
remaining customers are required to pick up via higher bills
(see, for example, SB 27X [Bowen]). The author and committee
may wish to consider whether such protection is also
appropriate for this bill.
6.Technical Amendment . Sections 3 and 4 of the bill should be
clarified to assure that the competition between the IOU and
the municipal utility contemplated by this bill is direct
access competition and not distribution competition.
7.Related Legislation . SB 23X (Soto), which is pending in this
committee, makes it easier for cities and counties to form
municipal utility districts.
AB 48X (Migden), which is pending in the Assembly
Appropriations Committee, is similar to this bill.
AB 54X (Wright), which is pending in this committee, permits
the Los Angeles Department of Water & Power (LADWP) to sell
power to five specific governmental entities in the Southern
California Edison service territory.
SB 1172 (Kuehl), which is pending in this committee, permits
LADWP to provide service to an entire property if LADWP serves
part of that property.
POSITIONS
Sponsor:
Author
Support:
East Bay Municipal Utility District
League of California Cities
Oppose:
None on file
Randy Chinn
SB 8X Analysis
Hearing Date: May 1, 2001