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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REVISED ANALYSIS
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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 permits
the second utility to sell power to its customers after making a
finding that the remaining retail customers of the first utility
won't be harmed by the transaction.
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 imposes a new standard, which is found
on Page 6, Lines 3-10 of the bill. This section of the bill is
somewhat confusing, but what it appears to do is to give both an
IOU and a municipal utility the ability to unilaterally sell
power to one another's customers without the consent of the other
utility and without requiring the initiating utility to open its
territory to sales by the other utility in question.
This provision appears to open 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.
Using one example where SMUD is Utility 1 and PG&E is Utility 2,
the language appears to say that SMUD can't sell power to PG&E's
customers unless the SMUD board permits PG&E to sell power to
SMUD's customers, which it can only do after finding that such a
decision won't harm the remaining SMUD customers. In this case,
SMUD is making the unilateral decision when it comes to power
sales to PG&E's customers.
Using a second example where PG&E is Utility 1 and SMUD is
Utility 2, the language appears to say that PG&E can't sell power
to SMUD's customers unless the CPUC (which is PG&E's regulatory
body) permits SMUD to sell power to PG&E's customers, which it
can only do after finding that such a decision won't harm the
remaining PG&E customers. In this case, PG&E (and the CPUC) are
making the unilateral decision when it comes to power sales to
SMUD's customers.
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