BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1885 - Bowen Hearing Date:
April 23, 2002 S
As Amended: April 1, 2002 FISCAL B
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DESCRIPTION
Current law requires electric utilities to furnish and maintain
such adequate, efficient, just, and reasonable services as are
necessary to promote the safety, health, comfort, and convenience
of its patrons, employees, and the public.
This bill requires electric utilities, as a part of their
obligation to serve the public, to obtain adequate supplies of
electricity to meet the needs of its customers.
This bill finds that because of extraordinary circumstances, the
Department of Water Resources (DWR) was temporarily charged with
acquiring adequate electric supplies, and that the public interest
is served by returning the electric supply obligation to the
utilities as soon as possible.
BACKGROUND
By January 2001, the extraordinary cost of electricity had
severely depleted the financial condition of the investor-owned
utilities (IOUs) to the extent that they were having difficulty
finding electricity sellers willing to do business with them. SB
7X (Burton), Chapter 3, Statutes of 2001-02 First Extraordinary
Session provided $400 million from the General Fund to DWR to
purchase power for California's IOU customers. Those funds were
spent in ten days.
On February 1, 2001, legislation authorizing DWR to continue
buying power on for IOU customers (AB 1X (Keeley), Chapter 4,
Statutes of 2001-2002 First Extraordinary Session) became
effective. That legislation gave DWR the authority to enter into
long-term power supply contracts to try and bring much needed
stability to California's power markets. At the time, it was
clear that this new authority was beyond DWR's existing level of
expertise, but many believed the state had no other viable choice
but to put DWR into the power buying business. AB 1X contained a
number of provisions, two of which are relevant to this bill
that's before the Committee today. First, AB 1X was clear that
nothing in it reduced or modified any IOU's obligation to provide
service to its customers. Second, the bill authorized DWR to
enter into electric contracts only until the end of 2002. This
temporary authorization was intended to provide a window during
which electric markets could be stabilized.
While California's electricity market has indeed stabilized, that
reality alone may not be a sufficient condition for returning the
power procurement duties to the utilities. The California Public
Utilities Commission (CPUC) has opened a proceeding to examine
this issue (Order Instituting Rulemaking 01-10-024). In that
proceeding, San Diego Gas & Electric (SDG&E) has suggested that
the state should continue buying electricity for all of the IOUs.
As an alternative to that approach, SDG&E lists a number of
actions which it views as a prerequisite before returning the
procurement obligation to the utilities, such as assurances that
the IOUs will be able to fully recover all of their costs
associated with buying power. Both Pacific Gas & Electric (PG&E)
and Southern California Edison (SCE) suggest, among other things,
that the utilities must be of investment grade status before they
are required to resume buying electricity on behalf of their
customers. TURN suggests that DWR's procurement authority should
be extended beyond the scheduled December 31, 2002 termination
date.
COMMENTS
1.Planning For January . As noted above, DWR's ability to enter
into new power purchase agreements ends on December 31, 2002.
With less than nine months to go before the end of the year,
it's timely for the Legislature to begin thinking about how
electricity procurement will work in 2003 and in subsequent
years once DWR's contracting authority expires. Because of the
state's long-term power contracts, the amount of electricity
that the IOUs will need to buy to cover the gap between the
supply and the demand will be much smaller next year.
2.Clarifying The Role of The IOUs . The obligation of the electric
utilities to buy electricity on behalf of their customers has
always existed in the sense that it's an integral part of
current law's mandate that they provide adequate and efficient
service to ratepayers. This bill directly states that the IOUs
have a responsibility to ensure they have enough electricity to
meet their obligation to serve their customers.
The utilities can only resume buying power when power generators
are willing to sell them electricity on terms that are
acceptable to ratepayers. This bill doesn't judge what those
terms are, nor does it comment on what, if any, conditions need
to be met or established for the IOUs to begin buying power
again. Rather, by clearly establishing that IOUs are required
to obtain electricity for their customers, the bill effectively
requires the CPUC and the utilities to determine the steps they
need to take to meet that obligation to serve.
POSITIONS
Sponsor:
Author
Support:
California Municipal Utilities Association
Oppose:
None on file
Randy Chinn
SB 1885 Analysis
Hearing Date: April 23, 2002