BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1876 - Bowen Hearing
Date: April 23, 2002 S
As Amended: April 17, 2002 FISCAL B
1
8
7
6
DESCRIPTION
This bill repeals various obsolete provisions of the Public
Utilities Code enacted by AB 1890 (Brulte), Chapter 854,
Statutes of 1996.
Specifically, this bill :
1.Repeals legislative findings and declarations codified by AB
1890.
2.Repeals provisions establishing, and granting powers to, the
Electricity Oversight Board (EOB).
3.Repeals provisions specifying recovery of uneconomic costs by
investor-owned utilities (IOUs) during the four-year
transition period established by AB 1890.
In addition, this bill :
1.Declares that refunds of excessive wholesale power costs
recovered by IOUs are property of ratepayers, and requires
that refunds be held in trust on ratepayers' behalf.
2.Requires that rates for IOU retained generation provide IOUs a
reasonable opportunity to recover costs and earn a reasonable
return based on the depreciated book value of generation
assets.
3.Authorizes the California Public Utilities Commission (CPUC)
to regulate an IOU holding company for the purpose of
enforcing any conditions of the CPUC's approval of the
formation of the holding company.
4.Prohibits an IOU from selling or transferring assets valued at
more than $10 million unless it grants a right of first
refusal to the California Power Authority.
5.Requires any gain or loss on sale of IOU assets included in
the IOU's rate base to be allocated exclusively to the IOU's
customers.
BACKGROUND
AB 1890 established the EOB to oversee the Independent System
Operator (ISO) and the Power Exchange (PX) and to "ensure that
the interests of the people of California are served."
Originally, the EOB was supposed to serve as an appellate body
for decisions of the ISO and PX governing boards.
The Federal Energy Regulatory Commission (FERC) took exception
to these provisions and, in 1998, ordered the ISO to change its
bylaws to eliminate the EOB's appointment function, as well as
the EOB's authority to approve ISO bylaws and hear appeals of
ISO governing board decisions. In the face of its order's
conflict with the provisions of AB 1890, FERC maintained that AB
1890's requirements were preempted by the Federal Power Act
SB 96 (Peace), Chapter 510, Statutes of 1999, in a compromise
with FERC, limited the EOB's confirmation powers to the
appointments of customer representatives to the ISO governing
board and limited the EOB's authority to serve as an appeal
board for decisions made by the ISO to matters that are
exclusively within the jurisdiction of the state.
Another key component of AB 1890 was a limited period during
which IOUs were authorized to recover stranded costs - IOU debts
from generation-related investments which might not be recovered
in a competitive market. This was intended to facilitate the
IOUs' transition to competitive electricity supply. AB 1890
gave the IOUs a four-year opportunity to recover from ratepayers
the portion of these debts that wasn't recovered in the market.
For most stranded costs, the opportunity for recovery ended on
December 31, 2001.
This bill repeals now outdated sections of AB 1890 and enacts
provisions intended to assure that ratepayers do not suffer
unfairly from the failures of deregulation.
COMMENTS
1.Whither EOB? With the passage of SB 96, the demise of the PX,
the passage of AB 5X (Keeley), Chapter 1, Statutes of 2001, to
establish an ISO board appointed by the Governor, and SB 47
(Bowen), Chapter 766, Statutes of 2001, to require Senate,
rather than EOB, confirmation of ISO board members, the powers
of the EOB have been substantially diminished. Of the powers
originally conferred by AB 1890, the EOB maintains general,
largely unenforceable, oversight of the ISO.
Further diminishing the EOB is the fact that it has no voting
board members and has not held a public meeting since April
2001. This bill simply repeals the statutes establishing the
EOB, without providing a successor. Although the original
oversight function may be obsolete, there is a certain amount
of "equity" within the EOB, such as outstanding legal claims,
which may need to be statutorily transferred to a successor if
the EOB is abolished.
2.The best laid plans? It has been clear since at least January
of 2001 that the rate freeze and transition cost recovery
scheme created by AB 1890 has collapsed. Rates were increased
on January 4, 2001, and again in June, even though the CPUC
did not determine that the criteria for ending the freeze had
been met. The IOUs recovered billions of dollars of stranded
costs during the first two years of the transition period, but
those dollars were no longer available to offset the losses
that the utilities incurred beginning in May of 2000.
According to the author, repealing the cost recovery sections
of AB 1890 simply recognizes the reality that the AB 1890 rate
scheme is no longer functional, as well as the fact that the
original statutory deadlines for the transition period and
rate freeze have now lapsed.
3.Holding companies accountable. When it authorized the
formation of IOU holding companies, the CPUC enumerated a
number of conditions in its decisions, including the so-called
"first priority" condition, which requires IOU holding
companies to give first priority to the capital requirements
of the IOU necessary to meet its obligation to serve. In
response to the CPUC's investigation into the applicability of
the "first priority" condition, IOUs have argued that the CPUC
has no jurisdiction to enforce such conditions. This bill
clarifies that the CPUC indeed retains the authority to
monitor and enforce the conditions that it imposes on the
formation of IOU holding companies.
4.Maintaining the benefits of utility assets. Proposed Section
27 of the bill (adding Section 857 to the Public Utilities
Code) would establish a right of first refusal for the Power
Authority in the event that any major IOU asset is proposed
for sale, transfer or other disposition. This would assure
that assets vital to the continued provision of utility
service could not be turned over to unregulated entities
without the state first having an opportunity to step in and
acquire the asset at the proposed transfer price. Similarly,
proposed Section 28 of the bill (adding Section 858 to the
Public Utilities Code) would clarify conflicting CPUC
precedents by establishing that any gain on sale of assets
that have been included in an IOU's rate base should be used
for the benefit of ratepayers.
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
None on file
Lawrence Lingbloom
SB 1876 Analysis
Hearing Date: April 23, 2002