BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1885|
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THIRD READING
Bill No: SB 1885
Author: Bowen (D)
Amended: 4/1/02
Vote: 21
SENATE ENERGY, U.&C. COMMITTEE : 5-1, 4/23/02
AYES: Bowen, Alarcon, Battin, Sher, Vincent
NOES: Morrow
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Electrical corporations
SOURCE : Author
DIGEST : This bill makes clear that electric utilities
have an obligation to obtain adequate supplies of
electricity.
ANALYSIS : 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 State Department of Water Resources
CONTINUED
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(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 they were
having difficulty finding electricity sellers willing to do
business with them. SB 7X (Burton), Chapter 3, Statutes of
2001, 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 10
days.
On February 1, 2001, legislation authorizing DWR to
continue buying power for IOU customers (AB 1X (Keeley),
Chapter 4, Statutes of 2001, 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 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.
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 the State should
continue buying electricity for all of the IOUs. As an
alternative to that approach, SDG&E lists a number of
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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
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 the IOUs will need to
buy to cover the gap between the supply and the demand will
be much smaller next year.
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 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.
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FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 5/13/02)
California Municipal Utilities Association
OPPOSITION : (Verified 5/17/02)
PG&E
Sempia
NC:kb 5/20/02 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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