BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1976|
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UNFINISHED BUSINESS
Bill No: SB 1976
Author: Torlakson (D)
Amended: 8/15/02
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
SENATE FLOOR : 38-0, 5/16/02
AYES: Ackerman, Alarcon, Alpert, Battin, Bowen, Brulte,
Burton, Chesbro, Costa, Dunn, Escutia, Figueroa, Haynes,
Johannessen, Johnson, Karnette, Knight, Kuehl, Machado,
Margett, McClintock, McPherson, Monteith, Morrow,
O'Connell, Oller, Ortiz, Peace, Perata, Polanco,
Poochigian, Romero, Scott, Sher, Soto, Speier, Torlakson,
Vasconcellos
ASSEMBLY FLOOR : 78-0, 8/19/02 - See last page for vote
SUBJECT : California Energy Commission: report
SOURCE : Author
DIGEST : This bill requires the California Energy
Commission to prepare a report on the feasibility of
implementing dynamic pricing tariffs for electricity, as a
way to reduce or shift peak demand. The bill also sets up
a process by which an investor-owned utility may obtain a
CONTINUED
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determination that its proposed electricity procurement
expenses will be deemed reasonable, and therefore
recoverable from ratepayers, before the procurement
expenses are incurred.
Assembly Amendments 1) add all provisions relating to
procurement expenses for investor-owned utilities and 2)
clarify that the required report shall also study critical
peak and other dynamic pricing, in addition to real-time
pricing.
ANALYSIS : Existing law requires the State 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.
Existing law:
1.Requires the rates of IOUs to be just and reasonable.
2.Authorizes State Department of Water Resources (DWR) to
procure the net short electricity requirements of
electric utilities.
3.Prohibits DWR from contracting for electricity after
December 31, 2002, but allows DWR to continue to
administer existing electricity purchase contracts after
that date.
4.Provides that, to the extent practicable, power sold by
the DWR to retail and use customers shall be allocated
pro rata among all classes of customers.
5.Requires California Energy Commission (CEC) to conduct an
ongoing assessment of the opportunities and constraints
presented by all forms of energy.
This bill requires the CEC to report on real-time
electricity pricing tariffs, and sets up a process at the
PUC by which an IOU may obtain a determination that its
proposed electricity procurement expenses will be deemed
reasonable, and therefore recoverable from ratepayers,
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before the procurement expenses are incurred.
Specifically, this bill :
1.Requires CEC to consult with the PUC and report, by March
2003, to the Legislature and the Governor regarding the
feasibility of implementing critical peak pricing, and
other dynamic pricing tariffs for electricity in
Califiornia.
2.Specifies that the report shall consider:
A. How wholesale real-time prices would be calculated
and made available to customers.
B. Options for day-ahead and hour-ahead retail prices.
C. Options for facilitating customer response to
real-time prices and managing total customer costs.
D. Estimates of potential peak load reductions,
including shifting of peak load demand to off-peak
periods.
E. Options for incorporating demand responsiveness
into the wholesale competitive market and operations
of the California Independent System Operator.
F. Options for ensuring customer protection under a
real-time pricing scenario, including identifying how
to safeguard groups who may be disproportionately
vulnerable to the impact of volatile prices.
G. Options for a variety of customer classes,
including industrial and commercial properties that
receive electricity from a master-meter through a
submetered system.
3.Require the PUC to allocate electricity provided by the
DRW among the IOUs.
4.Require each IOU to file, and PUC to review and accept,
modify or reject, a procurement plan specifying the date
the IOU intends to resume procurement, and enabling IOU
to fulfill its obligation to serve its customers at just
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and reasonable rates, eliminating the need for
after-the-fact reasonableness reviews, and ensuring
timely recovery in rates of prospective procurement
costs.
5.Require the procurement plan to be based on one or more
of the following standards of reasonableness:
A. An approved competitive bid-based procurement
process.
B. A performance-based incentive mechanism that shares
procurement risks and rewards between an IOU and its
customers.
C. Objective standards and review to determine the
recoverability of procurement transactions prior to
their execution.
6.Require IOUs, in their procurement plans, in order to
fulfill unmet resource needs, procure renewable energy
resources with the goal of ensuring that at least
additional one percent per year of the electricity sold
by IOU is renewable energy until a 20 percent renewable
resources portfolio is achieved, provided sufficient
public goods charge funds are available to cover the
above-market costs of new renewable energy.
7.Require PUC to establish balancing accounts for each IOU
to track the differences between revenues and procurement
costs incurred, to review the account semiannually, and
adjust rates or issue refunds to promptly amortize the
accounts. Until January 1, 2006, adjustment is required
whenever an account is under- or over-collected by more
than five percent of IOU's actual recorded generation
revenues for the prior calendar year. Require PUC to
provide for periodic review and modifications of
procurement plans.
8.Authorize PUC to contract out for risk management and
strategy advisors. Require PUC, prior to its approval of
any divestiture of generation assets owned by an IOU, to
determine the impact of the divestiture on the IOU's
procurement rates, and allows approval only if the PUC
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determines the divestiture will result in net ratepayer
benefits.
9.Allow an IOU with less than 500,000 retail customers to
apply for an exemption from these provisions.
Comments: Re-time Pricing
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
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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 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.
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.
Comments: Procurement
This bill sets up a process whereby that review of the
reasonableness of an IOU's electricity procurement plan
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will occur in advance, rather than in hindsight, and
procurement made according to the PUC-approved procurement
plan will later be regarded as having been reasonable per
se because of the prior approval.
Long-term contracts and credit ratings: When the electric
market was restructure, PUC required IOUs to buy and sell
from the Power Exchange (PX), which initially offered only
day-ahead and hour-ahead markets. In 1999, PX began
facilitating forward contract transactions in its block
forward market. Purchases from PX were deemed reasonable
per se by PUC. As a result of market conditions during the
energy crisis, long-term, bilateral contracts ere viewed as
an attractive way to stabilize volatile and high prices.
IOUs regard after-the-fact reviews of the reasonableness of
these contracts by PUC a deterrent to entering contracts.
All three IOUs are preparing to resume their role in
procurement of electricity, but the credit rating agencies
have indicated in their analyses of IOUs that an investment
grade rating, which is for the most part essential for an
IOU in order to make large electricity purchases without
significant collateral, cannot be achieved without an
assurance that cost recover mechanism will be honored into
the future. In a February 2002 publication, Standard and
Poor's stated among other things that investment grade
ratings for the IOUs will not be readily forthcoming if
utility procurement practices are to be subject to after
the fact reasonableness reviews.
Restructuring of the electricity markets over the last
years throughout the nation has brought about new
challenges to electric utilities. In the past in a
regulated environment, electric utilities usually had
guaranteed profit on every kilowatt-hour of electricity
sold. A market-based electricity market no longer
guarantees profit.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/19/02)
California Manufacturers and Technology
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Office of Ratepayer Advocates
SchlumbergerSema
Air Conditioning and Refrigeration Institute
Building Owners and Managers Association
Charles River Associates
State Public Utilities Commission
ASSEMBLY FLOOR
AYES: Aanestad, Alquist, Aroner, Ashburn, Bates, Bogh,
Briggs, Bill Campbell, John Campbell, Canciamilla,
Cardenas, Cardoza, Cedillo, Chan, Chavez, Chu, Cogdill,
Cohn, Corbett, Correa, Cox, Daucher, Diaz, Dickerson,
Dutra, Firebaugh, Florez, Frommer, Goldberg, Harman,
Hertzberg, Hollingsworth, Horton, Jackson, Keeley, Kehoe,
Kelley, Koretz, La Suer, Leach, Leonard, Leslie, Liu,
Longville, Lowenthal, Maddox, Maldonado, Matthews,
Migden, Mountjoy, Nakano, Nation, Negrete McLeod,
Oropeza, Robert Pacheco, Rod Pacheco, Papan, Pavley,
Pescetti, Reyes, Richman, Runner, Salinas, Shelley,
Simitian, Steinberg, Strickland, Strom-Martin, Thomson,
Vargas, Washington, Wayne, Wiggins, Wright, Wyland,
Wyman, Zettel, Wesson
NC:kb 8/20/02 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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