BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1126 - Alarcon Hearing
Date: April 24, 2001 S
As Proposed to be Amended Non-FISCAL
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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, the municipal
utility provides low-income public benefit programs at
least as beneficial as the IOU, and the municipal utility
gives priority to IOU customers in areas which have a
higher percentage of low-income residential and small
business customers. 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 was heard by this committee recently, 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 shouldn't be considered 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.
The author intends that the two parts of this bill work
together. Community aggregation allows customers to band
together and shop around, while allowing the municipal
utilities to compete in IOU service territories gives those
community aggregators another place to shop. 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 in 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.
Some people have proposed the idea of a "buyer's cartel"
as a means of offsetting 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 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)Municipal Utility Sales To IOU Customers . 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 a community 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.
There is also a question as to whether this provision
advances the author's desire to encourage local control,
because this provision simply allows a group of customers
to aggregate to buy the surplus power of the municipal
utility. This falls far short of municipalization, which
also gives customers a voice in the policies and
operation of the utility.
4)Focus On Low-Income Areas . The bill also requires
municipal utilities that want to serve IOU customers via
direct access to focus on low-income areas. This may
well discourage some municipal utilities from
participating and raises the question of how many of the
31 municipal utilities in California have surplus power
to sell and are willing to participate in this program.
5)Whose Customers Are Harmed & Who Decides? 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. The IOU can't stop the
municipal utility from coming in, nor does the municipal
utility have 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 runs counter to the author's goals in that
- after 18 months - it permits an IOU to sell electricity
to a municipal utility's customers without the consent of
the municipal utility. While a municipal utility may
appear to hold the upper hand today when it comes to
electricity pricing, that hasn't always been the case and
may not be the case at some point in the future.
6)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 to
sell power to five specific governmental entities in the
Southern California Edison service territory.
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
None on file
Randy Chinn
SB 1126 Analysis
Hearing Date: April 24, 2001