BILL ANALYSIS
SB 1885
Page A
Date of Hearing: June 24, 2002
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick D. Wright, Chair
SB 1885 (Bowen) - As Amended: April 1, 2002
SENATE VOTE : 29-1
SUBJECT : Electrical corporations.
SUMMARY : Requires an electrical corporation, as part of its
obligation to serve, to obtain adequate supplies of electricity
to meet the needs of its customers.
EXISTING LAW requires electric utilities to furnish and maintain
adequate, efficient, just, and reasonable services as necessary
to promote the safety, health, comfort, and convenience of its
patrons, employees, and the public.
FISCAL EFFECT : Unknown
COMMENTS :
The perilous financial condition of the California
investor-owned utilities (IOUs) developed as a result of the
escalating debts they incurred. They purchased electricity at
high wholesale prices through the California Power Exchange and
the California Independent System Operator during the summer and
fall of 2000, while operating under a frozen retail-rate
structure.
Spot prices for natural gas spiked dramatically during this same
time period. By January 2001, Moody's Investors Service and
Standard & Poor's had lowered the credit and debt rating of
Edison to near junk status, and the credit rating of Pacific Gas
& Electric to junk status. On January 18, 2001, Department of
Water Resources (DWR) became the default providers of
electricity to consumers in the state, in place of IOUs by
virtue of enactment of AB X1 1 (Keeley), Chapter 4, Statutes of
2001, First Extraordinary Session.
AB X1 1 gave DWR authority to enter into long-term power supply
contracts. AB X1 1 expressly provides that nothing in that bill
reduces or modifies an IOU's obligation to provide service to
its customers.
SB 1885
Page B
Obligation to serve
It is settled law that corporations which devote their property
to a public use, and are therefore public utilities, have an
obligation to serve all of the customers in the territory
covered by their franchise. A public utility may not pick and
choose, serving only the portions of their territory that are
presently profitable, leaving the remainder without service.<1>
DWR nevertheless began procuring electric power on behalf of the
three IOUs in January 2001. The enabling legislation made it
clear that DWR's entry, as a substitute franchisee did not
affect IOU obligation to serve.
This bill requires IOUs, as part of their obligation to serve,
to obtain adequate supplies of electricity to meet the needs of
its customers. But all three IOUs oppose this bill because its
enactment now into law is proposed at a time when none of IOUs
are certain of their ability to in fact fulfill that obligation.
As a practical matter, none of IOUs is or will be able to obtain
"adequate supplies of electricity to meet the needs of its
customers" until their credit rating is restored. The credit
rating agencies have outlined several conditions that are
prerequisite to returning the utilities to investment grade,
which include the enactment of a set of statutory rules
governing utility procurement.
In light of these realities, the author or the Committee may
wish to make this entire bill a statement of policy, including
the provisions that now require IOUs to obtain adequate
electricity -- a performance standard they simply can't meet
just yet.
REGISTERED SUPPORT / OPPOSITION :
Support
California Municipal Utilities Association
Coalition of California Utility Employees
California Public Utilities Commission
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<1> People ex. rel. New York & O. Gas Co. v. McCall (1917) 245
U.S. 345; United Fuel Gas Co. v. Kentucky R. Commission (1929)
278 U.S. 300.
SB 1885
Page C
Sacramento Municipal Utility District
Opposition
Sempra Energy
Pacific Gas & Electric Company
Southern California Edison
Analysis Prepared by : Paul Donahue / U. & C. / (916) 319-2083