BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1172|
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THIRD READING
Bill No: SB 1172
Author: Kuehl (D)
Amended: 9/6/01
Vote: 21
SENATE ENERGY, U.&C. COMMITTEE : 5-1, 5/8/01
AYES: Morrow, Alarcon, Battin, Murray, Vincent
NOES: Bowen
SENATE APPROPRIATIONS COMMITTEE : 7-1, 6/7/01
AYES: Battin, Escutia, Johannessen, Karnette, McPherson,
Murray, Perata
NOES: Bowen
SENATE FLOOR : 29-4, 6/7/01
AYES: Ackerman, Alarcon, Battin, Brulte, Chesbro, Escutia,
Figueroa, Haynes, Johannessen, Johnson, Karnette, Knight,
Kuehl, Machado, Margett, McClintock, McPherson, Monteith,
Morrow, Murray, O'Connell, Oller, Ortiz, Perata,
Poochigian, Scott, Soto, Torlakson, Vincent
NOES: Bowen, Dunn, Romero, Sher
ASSEMBLY FLOOR : 60-7, 9/12/01 - See last page for vote
SUBJECT : Municipally owned electric utilities
SOURCE : Universal Studios
DIGEST : This bill permits retail customers or local
agencies whose property straddles the service area of the
Los Angeles Department of Water and Power to take electric
CONTINUED
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service for the entire property from a single electrical
service provider, up to a limitation of 50 megawatts, and
only through July 1, 2002.
Assembly Amendments (1) allow for direct transaction
contracts, (2) clarify the provision relating to stranded
costs, and (3) add provision relating to customers who own
their own distribution facilities.
ANALYSIS : 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 (PUC).
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 (and that
takes electrical service from the State Department of Water
Resources [DWR] and another electrical service provider)
may enter into a direct transaction contract with LADWP to
provide service to the portion of the property not
currently served by LADWP. 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.
This bill requires that a customer electing to do this must
pay DWR for the difference between DWR's actual cost of
providing electricity and the reate charged by DWR for that
electricity, if any, as determined by DWR. This difference
results from the fact that DWR's costs for electricity
currently exceed the revenues it receives. That difference
will be financed by customers through the sale of bonds
which have already been authorized by the Legislature.
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The bill also allows the PUC to limit the right of these
customers to obtain service form LADWP to the extent such
limitation is necessary to ensure DWR's ability to meet its
obligation to repay the bonds.
This bill requires customers with their own distribution
facilities to pay all portions of a non-bypassable
generation related charge except that portion relating to
qualifying facility costs.
The effect of these provisions is to ensure that the
customers eligible to leave Southern California Edison
(SCE) and obtain service from LADWP pursuant to this bill
leave fewer stranded costs for remaining SCE customers.
Comments
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.
Who Can Take Advantage Of This Bill ? According to LADWP,
there are approximately 150 properties that straddle the
LADWP service territory line, but only about 15 would be
eligible for service under the terms of this bill.
The author's office contends this bill may have a positive
fiscal impact for the state by reducing the net short
position of SCE and releasing DWR form some of its power
procurement requirements. This bill limits customer
eligibility to 50 megawatts (LADWP's current daily load is
approximately 1500 megawatts a day), and any new contracts
would be at LADWP's discretion.
The final prong of assurance of overall financial
protection in this bill is the requirement that businesses
seeking to obtain electricity from LADWP pay their fair
share of the electricity purchased by the state on their
behalf. An exit fee is required to take LADWP service
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through a direct transaction, and the fee covers the
difference between what was already paid out in rates by
the customer and what DWR actually paid to procure power
for the state. In its opposition letter to this bill, TURN
posits that there will be a cost shift associated with
customers moving over to LADWP based on stranded
distribution costs, with some of the affordable net surplus
of LADWP going not into the grid, but to customers leaving
SCE. The exit fee required should eliminate concerns with
any cost shift, and the limitation of 50 megawatts for
customers entering LADWP service should eliminate concerns
about any significant reduction in availability of
affordable generated electricity from LADWP to SCE.
Additionally, those customers with their own distribution
facilities have limited responsibility to pay stranded
distribution costs after exiting service from an electrical
corporation.
The customers covered by this bill are uniquely positioned
in that properties they own straddle service areas of an
investor owned utility and LADWP. The current energy
situation in California dictates that LADWP, which self
generates for its customers, has a net surplus of power
while SCE is in a net short situation with DWR purchasing
the full net short for SCE customers. Blackouts have
occurred in SCE service area but not in LADWP service area.
The customers who may opt to switch to getting all of
their electric service from LADWP will be subject to both
an exit fee and to LADWP's agreement to serve them. This
situation could ensure that the net result for the state is
full coverage for its costs for procuring power for these
customers and a reduced net short position for SCE going
forward, reducing the state's procurement burden.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Fiscal Impact (in thousands)
Major Provisions 2001-02 2002-03
2003-04 Fund
DWR Potential unknown costs,
probably Special*
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offset by fee revenues
PUC Unknown, probably not
substantial costs Special**
*Electrical Power Fund
**Public Utilities Reimbursement Account
SUPPORT : (Unable to verify at time of writing)
Universal Studios (source)
Target Stores
OPPOSITION : (Unable to verify at time of writing)
TURN
Coalition of California Utility Employees
ARGUMENTS IN SUPPORT : Proponents argue they believe by
switching electric service from Southern California Edison
(SCE) to LADWP, they will realize sizeable savings and be
better assured of uninterruptible service. Universal
Studios and Target have submitted letters of support
stating this bill will allow them to "re-distribute
electrical energy it now receives from LADWP to the
remainder of its" property that is located contiguous to it
in Los Angeles County that's now served by SCE.
ARGUMENTS IN OPPOSITION : Opponents argue they are
concerned the bill will lead to cost-shifting and a greater
cost burden on small ratepayers. They also argue that
power that otherwise would have been available at
reasonable cost to SCE customers will now flow to Universal
and the customers on the border of LADWP. They argue the
bill sets a precedent for municipal utility districts which
runs counter to current law.
ASSEMBLY FLOOR :
AYES: Alquist, Aroner, Bates, Briggs, Calderon, John
Campbell, Canciamilla, Cardenas, Cardoza, Chavez,
Cogdill, Cohn, Corbett, Correa, Daucher, Diaz, Dutra,
Firebaugh, Florez, Goldberg, Harman, Havice,
Hollingsworth, Horton, Keeley, Kehoe, Kelley, Kortez, La
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Suer, Leach, Leslie, Longville, Lowenthal, Maddox,
Matthews, Migden, Nakano, Nation, Negrete McCleod,
Oropeza, Robert Pacheco, Rod Pacheco, Reyes, Richman,
Runner, Shelley, Simitian, Steinberg, Strickland,
Strom-Martin, Thomson, Vargas, Washington, Wesson,
Wiggins, Wright, Wyland, Wyman, Zettel, Hertzberg
NOES: Aaanestad, Ashburn, Bill Campbell, Cox, Leonard,
Maldonado, Pescetti
NC:cm 9/13/01 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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