BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1172 - Kuehl Hearing
Date: May 8, 2001 S
As Amended: April 5, 2001
Non-FISCAL B
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DESCRIPTION
Current law bars municipal utilities from providing
electric service to retail customers of investor-owned
utilities (IOUs) unless the customer confirms in writing an
obligation to pay a generation-related transition charge
established by the California Public Utilities Commission
(CPUC).
Current law bars one utility from selling to the customers
of another utility unless the first utility agrees to let
the second utility sell to the retail customers of the
first.
This bill permits any customer whose property straddles the
service area of the Los Angeles Department of Water and
Power (LADWP) and any other electricity provider to take
electric service on that entire property from a single
provider. The ability to exercise this authority ends July
1, 2002.
This bill precludes LADWP from entering into a direct
transaction contract with those customers if the total
amount of electricity contracts exceeds 50 megawatts (MW)
per day.
BACKGROUND
Interest in municipal utilities has risen with the ongoing
price and reliability concerns of customers of IOUs. LADWP
has become popular in recent months because it has surplus
electricity and relatively low rates. When electric
markets were restructured in 1996, many felt LADWP would be
one of the losers precisely because it had expensive,
surplus capacity.
COMMENTS
1.Who Can Take Advantage Of This Bill? According to LADWP,
there are approximately 150 properties that straddle the
LADWP service territory line and would be eligible for
service under the terms of this bill. However, the City
of Los Angeles has declined to identify the names or
sizes of those properties.
Universal Studios and Target have submitted letters of
support for this bill to the committee, stating this
measure will allow them to "re-distribute electrical
energy it now receives from the Los Angeles Department of
Water and Power (LADWP) to the remainder of its" property
that is located contiguous to it in Los Angeles County
that's now served by Southern California Edison (SCE).
2.Are Sizeable Savings & Uninterruptible Service
Guaranteed? Supporters believe by switching electric
service from SCE to LADWP, they'll realize sizeable
savings and be better assured of uninterruptible service.
However, it's not clear any savings will be realized
through this bill because nothing in the measure requires
LADWP to offer service to new customers at the rates
offered to its existing customers. LADWP may decide, for
what ever reason, that the rates charged to these new
customers should be higher than the rates charged to the
customers in its existing service territory.
As for the prospect of uninterrupted service,
historically LADWP is somewhat electrically separated
from SCE. There is neither a physical nor legal
requirement that when SCE is hit with a rolling blackout
that such a blackout will be extended to LADWP customers
(this January's rolling blackouts didn't blackout LADWP).
Consequently, becoming an LADWP customer in the manner
proposed by this bill (using the contiguous property
requirement) may very well reduce one's exposure to
rolling blackouts. However, that will in turn probably
increase the potential that an SCE customer will be hit
by a blackout, since any rolling blackouts will have to
be spread across a smaller customer base.
3.Stranded Costs . This bill creates two different types of
stranded costs that ratepayers may be saddled with.
The first is a stranded cost to SCE and its ratepayers
that stems from disconnecting current SCE customers who
choose to opt for LADWP power under this bill. Those
poles, wires, and transformers previously used to serve
the customer won't generate any revenue and someone needs
to pick up the cost - either SCE, its customers, or the
customer who leaves SCE for LADWP.
The second potential stranded cost is to the Department
of Water Resources (DWR) for power it has contracted for
but no longer needs. Depending on the amount of power
procured by DWR, this may or may not be a problem.
4.Effect On Other Customers' Pocketbooks . Allowing one set
of customers access to (presumably) cheaper LADWP power
provides those customers with a benefit, but that benefit
is paid for by every other IOU customer in the state.
Consider the following scenario using hypothetical
numbers: Assume that DWR (which has taken over the
responsibility of buying the net short from the state's
IOUs) has 10,000 customers and needs to buy 10 MW of
power for them. If DWR buys 9 MW on the spot market at
$50/MW and buys 1 MW from LADWP at $10/MW, DWR will have
spent $460 for 10 MW, which is an average cost of $46/MW.
If, however, LADWP doesn't sell that power to DWR but
instead sells it directly to 1,000 customers of DWR, then
DWR would only have to buy 9 MW of power at $50/MW. This
reduces DWR's total cost from $460 to $450, but it raises
the average cost per MW paid by DWR's customers from $46
to $50. The benefit of LADWP's cheap power is
transferred from the general body of ratepayers to those
customers who are statutorily permitted to purchase power
directly from LADWP.
5.How Much Power Does LADWP Have? According to the City of
Los Angeles, LADWP has the capacity to produce about
3,400 MW of power daily, but its average load within its
service territory is about 1,700 MW per day.
6.LADWP Power Pricing Policies . In a February 16 letter to
the chairwoman of the Senate Energy, Utilities, &
Communications Committee, LADWP outlined its wholesale
pricing policies as follows:
q LADWP sells its native load customers the least
expensive power it can produce. All of the output of
the hydroelectric, coal, and nuclear generating units
is consumed by the native load, leaving the more
expensive natural gas-fired units available for sale
in the wholesale market.
q Since early in 2000, LADWP has had a policy of
selling its excess generating capacity to California
first. In fact, during any Stage 1, 2, or 3 alert
called by the Independent System Operator (ISO), LADWP
sells only to entities inside the state.
q The LADWP pricing methodology for wholesale trading
has always been cost-based for sales in California and
market-based for sales outside of California.
q LADWP doesn't sell energy to the state at prices
where it will be forced to take a loss. Its bids are
based on its costs, which include the price of natural
gas, the cost of buying emissions credits, the cost
for the transmission tariff, the cost for starting up
a unit, and the cost of maintaining the unit.
q The prices bid to the state vary based on the
advance notice given by the state.
q DWP's highest prices (in February) were when LADWP
used its Castaic pumped storage facility.
7.What Is DWR Buying Power At & What Is LADWP Selling It
For? DWR has declined to release information on the
individual or average power costs it's incurring. LADWP
has also declined to release information on how much it's
selling power to the state for today. In its February
16, 2001 letter to the chairwoman of this committee,
LADWP did note, "For the last few months, (LA)DWP has
sold energy to the State every day with the average price
being between $200-$450 per Megawatt-Hour."
8.How Many Times Can the Same Power Be Sold? LADWP has
chosen to sell any excess power it produces in a Stage 1,
2, or 3 emergency situation to DWR. There are three
bills in this committee that create three other potential
buyers for this same power: AB 54X (Wright) permits
LADWP to sell its excess power to specific governmental
entities, SB 1172 (Kuehl) permits LADWP to sell that
power to specific public and private entities, and SB 8X
(Alarcon) permits LADWP (or any other municipal utility)
to sell that power to communities that choose to
aggregate their power purchases.
9.Technical Amendments .
Page 2, Lines 11-12. For clarity, the last two sentences
of subdivision (a) should be deleted and replace it with
the clause "Nothwithstanding any other provision of
law,".
Page 2, Line 3. The bill should be clarified to ensure
that customers choosing to be supplied by LADWP by July
1, 2002 may remain with LADWP for as long as LADWP agrees
or for a length of time that the two parties mutually
agree upon.
Page 2, Lines 18-19. The limitation section should be
clarified to provide a 50 MW limitation on LADWP
contracts.
The bill should be clarified to assure that while the
customer may choose to purchase power from LADWP, LADWP
isn't required to sell power to the customer.
POSITIONS
Sponsor:
Universal Studios
Support:
Target Stores
Oppose:
None on file
Randy Chinn
SB 1172 Analysis
Hearing Date: May 8, 2001