BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1519 - Bowen Hearing Date:
April 23, 2002 S
As Amended: April 18, 2002 FISCAL B
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DESCRIPTION
Existing law (AB 1X (Keeley), Chapter 4, Statutes of 2001)
requires the California Public Utilities Commission (CPUC) to
suspend the right of retail customers of investor-owned
utilities (IOUs) to acquire electric power service from non-IOU
providers (direct access) until the Department of Water
Resources (DWR) no longer supplies power to IOU customers.
Pursuant to AB 1X, the CPUC has suspended direct access as of
September 20, 2001.
This bill requires the CPUC to establish a mechanism to allow
electrical corporation customers to purchase renewable power.
This bill allows, notwithstanding the suspension of direct
access, IOU customers to obtain renewable power service from
alternate power providers, subject to payment of any outstanding
obligations incurred by DWR to serve the departing customer.
This provision is contingent on the CPUC's resolution of the
cost obligations of existing direct access customers.
This bill authorizes DWR or the CPUC to assess a "re-entry fee"
on non-residential customers returning to IOU service from
direct access if the customer's return would otherwise impose
costs on other IOU customers, or the state. This bill requires
the customer's provider to pay any such fee if the customer is
involuntarily returned to IOU service.
Existing law requires non-IOU electric service providers (ESPs)
to register with the CPUC, but only if they serve residential
and small commercial customers.
This bill requires all ESPs to register with the CPUC.
BACKGROUND
In 1996, the Legislature passed AB 1890 (Brulte), Chapter 856,
Statutes of 1996, to restructure the electric industry. One of
the key features of electrical restructuring was the
authorization of retail competition within IOU service areas.
AB 1890 ended the service monopoly of utilities and authorized
retail customers to purchase energy directly from suppliers.
These transactions are known as "direct access."
AB 1X, as part of the structure to authorize DWR to purchase
electricity for utility customers, authorized the CPUC to
prohibit additional direct access. AB 1X permits the issuance
of ratepayer-backed revenue bonds to finance DWR purchasing
costs. To ensure the predictable revenue stream necessary for
the issuance of bonds and prevent cost-shifting from direct
access to bundled service customers, the CPUC was authorized to
prevent additional migration of IOU customers by suspending
direct access.
Pursuant to AB 1X, the CPUC issued a proposed decision
establishing July 1, 2001 as the date of suspension of direct
access. After postponing its initial proposed decision, on
September 20, 2001, the CPUC issued an order establishing
September 20, 2001 as the suspension date and reserving the
right to establish July 1, 2001 as the suspension date pending
further investigation.
Between January and June 2001, the vast majority of customers
previously served by direct access providers returned to IOU
service, benefiting from retail rates which were lower and more
stable than market prices. Between July 1, 2001 and September
20, 2001, thousands of predominantly large industrial customers
of investor-owned utilities, who had taken service from the
state at below-market rates, departed for direct access as
market conditions improved. During the July 1 to September 20
period, direct access increased from approximately two percent
to approximately 13 percent of the total IOU load.
On January 25, 2002, following its investigation, a CPUC
Administrative Law Judge proposed to establish July 1 as the
suspension date to, among other things, prevent the cost
shifting created by a later suspension date. On March 22, 2002,
the CPUC instead adopted an alternate decision confirming
September 20 as the suspension date and contemplating future
CPUC action to impose "exit fees" to recover the costs owed by
direct access customers.
This bill requires the CPUC to establish a mechanism to allow
IOU customers to choose to purchase renewable power, including
the option of requiring IOUs to offer renewable power service,
or allowing customers to leave IOU service to purchase renewable
power via direct access. This bill mitigates cost-shifting to
remaining IOU customers by requiring departing customers to pay
DWR for any uncollected costs associated with serving them.
COMMENTS
1.Who will invest in renewable power? Californians have long
expressed support for renewable power. In the past, the state
has demonstrated leadership in the development of renewable
power resources. During the energy crisis, that leadership
has suffered some setbacks.
Prior to its suspension, direct access had been the only
method for IOU customers to directly purchase renewable power,
short of installing their own renewable power source on-site.
Currently, IOU customers have no means to elect to receive,
and pay for, power derived mostly or entirely from renewable
resources.
IOUs have a certain amount of renewable power in their
portfolios (the system average is about 12 percent of total
electricity sales), which is distributed, and paid for, evenly
among IOU customers. Virtually all IOU renewable power comes
from contracts with qualifying facilities mandated by the
federal Public Utility Regulatory Policy Act. Notwithstanding
the Legislature's expression of intent in AB 1X that DWR
secure as much renewable energy as possible, DWR's power
purchase portfolio contains negligible renewable power. The
renewable share of overall power sales has stagnated. Barring
some change, it will likely diminish in the coming years as
planned investment in renewable megawatts is vastly outpaced
by investment in megawatts derived from natural gas.
SB 532 (Sher) proposes to require an increasing share of
renewable power by imposing a "renewable portfolio standard"
on certain retail electricity providers. By provided a means
to increase direct consumer investment in renewable power,
this bill would provide one method for IOUs and ESPs to
achieve the goals articulated in SB 532.
2.Why only renewable power? According to the author, it is
inappropriate to authorize the full range of direct access
while the recovery of costs owed by existing direct access
customers remains unresolved by the CPUC. Currently, these
unresolved costs represent a multi-billion dollar risk to
bundled-service IOU customers.
The rationale for authorizing customers to purchase renewable
power via direct access is that there is currently no
significant market for new, and certain existing, renewable
power projects. The IOUs are not buying power and have not
demonstrated a strong commitment to renewable power in the
past. DWR is purchasing power, but, as noted above, has also
not shown a strong commitment to renewable power.
3.DWR's obligations. DWR's procurement costs since it began
purchasing power for IOU customers have exceeded what it has
collected from IOU customers in CPUC-approved rates. As such,
DWR has incurred debt for each customer served since it began
procuring power for IOU customers in January. This debt has
been carried by the General Fund and bridge loans, and will be
carried by the issuance of revenue bonds pursuant to AB 1X,
and ultimately repaid from "headroom" in customer rates.
For customers who have departed for direct access, DWR has at
least two main financial concerns. The first is the cost of
serving that customer prior to departure, and related
financing costs. If DWR has securitized anticipated future
rates to cover the cost of buying power for the customer now,
and the customer leaves, the future rate stream disappears,
and must be replaced by shifting rates to other customers.
The second concern is related to commitments made to serve
that customer in the future, i.e., long-term contracts. If
DWR secures contracts to serve a projected load, and that load
shrinks as a result of customer departure, DWR may be left
with "stranded" contract obligations.
If customers are permitted to go to alternate providers and
leave legitimate obligations behind, the remaining IOU
customers will have to cover the costs.
4.Related legislation. SB 27XX (Bowen) authorizes direct access
for customers who purchase electricity with a minimum of 80
percent renewable content, subject to payment of certain DWR
costs. SB 27XX is pending in the Assembly Energy Costs and
Availability Committee.
POSITIONS
Sponsor:
Author
Support:
Clean Power Campaign
Independent Energy Producers Association
Sierra Club California
Oppose:
Coalition of California Utility Employees
Lawrence Lingbloom
SB 1519 Analysis
Hearing Date: April 23, 2002