BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 85XX - Burton Hearing Date:
July 10, 2001 S
As Introduced: June 11, 2001 FISCAL B
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DESCRIPTION
Current law freezes electrical rates for investor-owned utility
(IOU) customers at June 10, 1996 levels through March 31, 2002
or the date at which the utility's stranded costs have been
recovered, whichever comes first. Residential and small
commercial customers are required to receive rate reductions of
10% for that same period which are financed through rate
reduction bonds.
Current law states legislative intent that not later than April
1, 2002, residential and small commercial customers receive a
total rate reduction of at least 20% (10% on top of the
above-noted 10% reduction) from June 10, 1996 rate levels.
Once the 10% rate reduction expires, this bill bars the
California Public Utilities Commission (CPUC) from raising rates
back to the pre-10% rate reduction levels solely because the
mandatory rate reduction period has expired.
This bill does not otherwise effect the authority of the CPUC to
set rates.
BACKGROUND
A fundamental feature of the 1996 electric restructuring effort
was a 10% rate reduction for residential and small commercial
customers, accompanied by an overall rate freeze for all
customers through March 2002 or whenever the utility's stranded
costs were recovered. Those rate reductions were financed
through rate reduction bonds, which are being repaid by the
beneficiaries of the rate reductions through a charge on the
utility bills.
The Legislature and Governor restructured electric markets in
1996 with the notion that electric rates would be reduced. The
10% statutorily required rate reduction was simply the down
payment, the first of what were hoped to be many subsequent rate
reductions. The Legislature's electric restructuring conference
committee was confident enough that electric rates would
continue to drop that it discussed a statutory mandate of lower
rates subsequent to the end of the rate freeze, though that
effort was ultimately abandoned in favor of the statement of
legislative intent.
COMMENTS
1)What Will Happen To Customer Rates? While Californians can
still hope for lower electric rates, the reality is likely to
be much different than what everyone had hoped it would be.
Still left open is the question of what happens when the
statutory 10% rate reduction ends at the end of March 2002 (or
whenever the CPUC finds that the IOUs have paid off their
stranded costs). If nothing is done, then residential and
small commercial customers will likely see an increase in
their bills. That increase will be somewhat less than 10%,
because the 10% rate reduction applies to rates in effect
before the 1 cent per kilowatt hour increase that took effect
on January 4, 2001 and before the average 3 cents per kilowatt
hour increase authorized on March 28, 2001 that took effect
last month.
2)Thawing Of Rate Freeze Alone Can't Trigger Rate Hikes . This
bill bars the CPUC from raising rates on residential and small
commercial customers after the end of the statutory 10% rate
reduction simply because the mandate for a 10% reduction
lapses. This will have one of four consequences:
Rates for non-residential and small commercial
customers must rise to make up for the lost revenue.
Another revenue source will have to be found to
make up for the lost revenue.
The CPUC will need to find another rationale for
raising residential and small commercial customer
rates.
The utilities will have to make due with less
revenue.
The author notes residential and small commercial customers
never advocated for restructuring electric markets, yet
they've been hit with historic rate increases as a consequence
of that restructuring.
The Legislature made clear its 20% rate reduction expectations
for residential and small commercial customers in the intent
language of the restructuring statutes. That expectation, the
only explicit finding on lower rates for any customer class,
won't be met. Given that change in circumstance, the author
believes it's only fair that residential and small commercial
rates not be increased again.
3)How Will Rate-Setting Work In A Post-Freeze World? This bill
raises the larger issue of how rates will be set once the rate
freeze is formally ended. At the time the deregulation
statute was enacted, the thought was utility distribution and
transmission rates would continue to be regulated on a
cost-of-service basis, while generation costs would be passed
through at market prices. At this point, the events that have
unfolded over the past year seem to have resulted in electric
rates that are set by the CPUC subject to the requirement that
the CPUC provide the Department of Water Resources (DWR) with
sufficient revenue to cover its power procurement costs, which
will be revised at least annually.
4)Effect On San Diego Gas & Electric Customers . SDG&E customers
saw their rate freeze end two years ago. While it isn't
completely clear, this bill would seem to have no effect on
SDG&E customers.
POSITIONS
Sponsor:
Author
Support:
The Utility Reform Network
Oppose:
California Manufacturers and Technology Association
Randy Chinn
SB 85XX Analysis
Hearing Date: July 10, 2001