BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1976|
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THIRD READING
Bill No: SB 1976
Author: Torlakson (D)
Amended: 4/30/02
Vote: 27 - Urgency
SENATE ENERGY, U.&C. COMMITTEE : 8-0, 4/23/02
AYES: Bowen, Morrow, Alarcon, Battin, Murray, Sher,
Speier, Vincent
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : California Energy Commission: report
SOURCE : Author
DIGEST : This bill requires the California Energy
Commission to prepare a report on the feasibility of
implementing real-time pricing tariffs for electricity.
ANALYSIS : Existing law requires the California Public
Utilities Commission (PUC) to set the rates (tariffs)
charged to customers of investor-owned utilities (IOUs) and
requires the PUC to conduct pilot studies of real-time
metering, which authorize the PUC to adopt real-time
pricing tariffs.
This bill requires the California Energy Commission (CEC),
in consultation with the PUC, by March 31, 2003, to prepare
a report regarding the feasibility of implementing
real-time pricing tariffs for electricity in California.
CONTINUED
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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 a 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
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widely tested. Implementation of RTP for customers of the
investor-owned utilities would require the adoption of a
RTP tariff by the PUC.
Last May, the CEC petitioned the PUC to implement an RTP
tariff as an alternative to the PUC-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 PUC 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 PUC has not
taken any further action on the proposed RTP tariffs.
Comments
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 State 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.
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
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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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/13/02)
California Manufacturers and Technology
Office of Ratepayer Advocates
SchlumbergerSema
NC:kb 5/14/02 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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