BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1976 - Torlakson Hearing
Date: April 23, 2002 S
As Introduced: February 22, 2002 FISCAL/URGENCY
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DESCRIPTION
Existing law requires the California Public Utilities Commission
(CPUC) to set the rates (tariffs) charged to customers of
investor-owned utilities (IOUs) and requires the CPUC to conduct
pilot studies of real-time metering, which authorize the CPUC to
adopt real-time pricing tariffs.
This bill requires the California Energy Commission (CEC), by
November 1, 2002, to prepare a report regarding the feasibility
of implementing real-time pricing tariffs for electricity in
California.
This bill is an urgency measure.
BACKGROUND
The value, and price, of electricity varies by time of day and
season. Consumption of electricity is much lower at 4:00 a.m.
than it is at 4:00 p.m. and so is the price. Traditional
mechanical meters record the total amount of electricity
consumed between readings, but do not record actual consumption
patterns (temporal data). Time-of-use or real-time meters
measure energy as it is being used, providing an exact reading
of how much energy was used at any given time.
Real-time pricing (RTP) refers to system in which customers pay
their utility's actual cost of purchasing electricity at the
time it is consumed. To accomplish this, customers must have
real-time meters and the utility must have a tariff which
permits it to bill its customers at its real-time procurement
cost.
RTP contrasts with the current rate system used by most utility
customers, in which electricity consumption is recorded on a
gross monthly basis and customers are billed at rates which
reflect the system average cost of electricity, regardless of
whether the individual customer consumed it during periods of
high or low demand.
RTP also differs from time-of-use (TOU) rates, currently used by
commercial, industrial and agricultural customers, as well as a
small number of residential customers. TOU rates establish two
or three different prices for different times of the day, and
different rates for different seasons, but do not reflect
actual, day-to-day variations in demand and price, which can be
significant.
RTP exposes customers to market price signals and gives them
reason to respond to those signals, e.g. by using less
electricity at times of peak demand, and more at times of low
demand. The absence of price-responsive demand associated with
fixed retail rates has been cited as a contributor to spiking
wholesale prices. RTP supporters believe it will result in
reduced demand during peak periods and empower customers to
collectively mitigate supplier market power by curtailing use
when wholesale prices spike. Actual customer response to RTP
has not been widely tested. Implementation of RTP for customers
of the investor-owned utilities would require the adoption of a
RTP tariff by the CPUC.
Last May, the CEC petitioned the CPUC to implement an RTP tariff
as an alternative to the CPUC-administered interruptible program
for customers with loads greater than 200 kilowatts (i.e. large
commercial and industrial customers). Many of these customers
have received real-time meters pursuant to a program established
by AB 29X (Kehoe), Chapter 8, Statutes of 2001, which
appropriated $35 million to the CEC for installation of
real-time meters. According to the CEC, this program will
result in the installation of 22,000 meters statewide. However,
without a real-time pricing tariff, these meters will have a
limited public benefit.
In August, the CPUC rejected the CEC's proposed RTP tariff and
instead ordered the IOUs to propose RTP tariffs. Each of the
IOUs filed RTP proposals in August. The CPUC has not taken any
further action on the proposed RTP tariffs.
COMMENTS
1.Complications of real-time pricing. With the demise of the
day-ahead market operated by the Power Exchange, the existence
of wholesale price caps, and procurement of the net short by
the Department of Water Resources through bilateral contracts,
there is no transparent benchmark that reflects the real-time
price electricity. Most electricity is now sold at regulated
rates or through fixed-price contracts. What limited daily
electricity market there is lacks the confidence of many
customers that it will yield competitive, or just and
reasonable, prices. For real-time pricing to work as
advertised, customers must be notified of the time in time to
respond and must have confidence that the prices reflect the
utilities' actual costs and are not arbitrary, or based on a
faulty source.
2.Bill may not allow sufficient time for study completion.
Currently, the bill requires a report on or before November 1,
2002. While this is an urgency bill, it may not be signed
until September 30, leaving only one month to complete the
study. The author and the committee may wish to consider
allowing somewhat more time to complete the study.
3.Tariff feasibility is CPUC's bailiwick. The CEC has indicated
its support for real-time pricing, however it is the CPUC that
must adopt the requisite tariffs to implement RTP and it is
the CPUC that has raised concerns about implementing RTP. The
CPUC seems better suited to analyze the feasibility of
implementing a utility tariff than the CEC, which does not
have authority to set rates and may not have an understanding
of the full range of issues associated with setting rates.
The author and the committee may wish to consider whether the
report should be prepared by the CPUC, rather than the CEC.
4.Certain findings are not well established. This bill makes
the following findings:
"Real-time pricing is the fastest and most cost-effective way
to achieve large amounts of demand reduction."
"Real-time pricing helps mitigate the market power of
generators by allowing loads to participate in the wholesale
market."
These statements embrace the theoretical benefits of real-time
pricing, but have not been established by any experience in
the California market. The author and the committee may wish
to consider striking these findings from the bill.
5.Two pending studies. There are two legislatively-mandated
reports outstanding on the subject of real-time pricing. One
was due March 31 (SB 1388 (Peace), Chapter 1040, Statutes of
2000 - Public Utilities Code Section 393), the other is due
June 30 (AB 29X (Kehoe), Chapter 8, Statutes of 2001 - Public
Utilities Code Section 739.11).
The first has not been completed because it is contingent on
the end of the IOUs' rate freeze. The second has not been
funded. Both address the feasibility, and efficacy, of
real-time pricing by requiring pilot studies. The report
required by this bill could be considered duplicative of these
existing required studies.
POSITIONS
Sponsor:
Author
Support:
California Manufacturers & Technology
Office of Ratepayer Advocates
SchlumbergerSema
Oppose:
None on file
Lawrence Lingbloom
SB 1976 Analysis
Hearing Date: April 23, 2002