BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1876|
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THIRD READING
Bill No: SB 1876
Author: Bowen (D), et al
Amended: 5/20/02
Vote: 21
SENATE ENERGY, U.&C. COMMITTEE : 5-0, 4/23/02
AYES: Bowen, Morrow, Sher, Speier, Vincent
SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/13/02
AYES: Alpert, Bowen, Johannessen, Karnette, Murray,
Perata, Speier
SUBJECT : Electrical restructuring
SOURCE : Author
DIGEST : This bill is an omnibus bill that (1) repeals
statutes establishing and granting certain powers to the
Electricity Oversight Board, (2) establishes a Ratepayer
Refund Account for the deposit of any refunds of excessive
wholesale power costs recovered by the electrical
corporations, and (3) makes a variety of other changes.
ANALYSIS : AB 1890 established the Electricity Oversight
Board (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
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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.
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 EOB.
3.Repeals provisions specifying recovery of uneconomic
costs by IOUs during the four-year transition period
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established by AB 1890.
In addition, this bill:
1.States legislative intent that regional electricity
transmission markets in the western states be developed
and that access to those markets be improved. The bill
specifies that voluntary adoption of a regional compact
is the preferred means to accomplish this development.
2.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.
3.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.
4.Authorizes the State Public Utilities Commission (PUC) to
regulate an IOU holding company for the purpose of
enforcing any conditions of the PUC's approval of the
formation of the holding company.
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.
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
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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 PUC 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 PUC 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 PUC's investigation into
the applicability of the "first priority" condition, IOUs
have argued that the PUC has no jurisdiction to enforce
such conditions. This bill clarifies that the PUC 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 28 of the bill (adding Section 858 to the Public
Utilities Code) clarifies conflicting PUC 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.
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FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
The EOB's 2001-02 budget is about $3.4. It is unknown
whether part or all of the EOB's authority and
responsibilities would be transferred to another entity,
and therefore difficult to determine cost savings. The
Senate Budget Subcommittee No. 2 recently took a number of
actions related to the EOB, including deleting funding and
positions associated with generation maintenance, deleting
six vacant positions and related funding, and requiring the
EOB to submit various reports related to staff activities
compared to the board's authority, and the status of
pending litigation.
PURA revenues are derived from an annual fee imposed on
electrical, gas, telephone, and water corporations and
every other public utility providing service directly to
customers. Therefore, any increased costs to the PUC
should be offset by fee revenues.
Presumably, the Independent System Operator (ISO) would be
the entity participating in any voluntary regional compact
to develop transmission markets. The ISO is a nonprofit
public benefit corporation which receives no state funding,
but rather derives its revenues from a surcharge imposed on
electricity bills.
NC:kb 5/22/02 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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