BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 425 - Richman Hearing Date:
July 8, 2003 A
As Amended: July 7, 2003 FISCAL B
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DESCRIPTION
Existing law requires:
1.Investor-owned utilities (IOUs) to offer optional
"interruptible or curtailable" electric service to heavy
industrial customers at rates which are discounted to reflect
the risk of being subject to interruptions.
2.The California Public Utilities Commission (CPUC) to direct
the IOUs to continue efforts to reduce industrial rates to a
level competitive with other states, without shifting costs to
other classes.
3.The CPUC to continue the availability of interruptible
service, at the same rates in effect on June 10, 1996, at
least until March 31, 2002.
This bill extends and revises the interruptible service program.
Specifically, this bill:
1.Requires the CPUC to continue the availability of
interruptible service indefinitely at a rate which reflects a
"cost-based pricing incentive."
2.Changes the statutory eligibility for interruptible programs
from "qualified heavy industrial customers" to "all customers
with demand at, or in excess of, 500 kilowatts" and authorizes
the CPUC to exclude any category of customers for which firm
service is essential for public health and safety.
3.Requires customers who fail to interrupt when called to pay a
penalty of $9.30 per kilowatt-hour of excess power taken, but
authorizes the CPUC to adopt a different penalty if it
determines the penalty is insufficient to ensure compliance.
4.Requires IOUs to remove from interruptible service a customer
who chooses not to comply substantially with two consecutive
interruption requests.
5.Requires IOUs to eliminate any unauthorized (i.e. not
cost-based) incentives in existing interruptible rates before
January 1, 2005 or until the conclusion of the rate design
phase of its next general rate case (GRC).
BACKGROUND
Since the mid-1980s, large IOU customers have been offered rate
discounts for agreeing to interrupt their electricity service to
prevent broader service interruptions when demand threatens to
exceed supply. If demand exceeds supply after these voluntary
interruptions, IOUs implement rotating outages based on
CPUC-authorized curtailment priorities.
Interruptible programs serve as blackout insurance, providing
statewide grid reliability, and reducing the potential for
rotating outages or a catastrophic system collapse. Ratepayers
pay the premium by funding rate discounts to attract large
customers who are willing to interrupt when called.
Interruptible customers are subject to six-hour interruptions at
a time, not to exceed a total of 100 or 150 hours per year. In
return, they are assured a fixed discount of about one cent per
kilowatt-hour.
IOUs have used interruptible rates as a tool to attract and
retain large customers. Prior to 2001, interruptions were very
infrequent, so customers were able to accrue substantial rate
benefits at fairly low risk.
In late 2000 and early 2001, the equation flipped and many
customers who were attracted to the program by the rate discount
weren't prepared to meet the extensive and unprecedented
interruption obligations. Some customers reported they didn't
realize they were subject to interruptions and there were some
customers on the program for which firm service is critical,
such as hospitals.
Many customers failed to interrupt and incurred large penalties.
Although the penalty amounts were large, they were far exceeded
by the premium paid by ratepayers to fund the discount over the
years. However, the CPUC waived the penalties for many
customers and barred those customers from participating in the
program.
Although the statute only requires the program to extend through
March 2002, in April 2001, the CPUC extended it through December
2002, to cover the 2001 and 2002 summer peak demand. In April
2002, the CPUC again extended the program for each IOU until the
conclusion of the rate design phase of its next GRC. This
effectively extended the program through early 2004. The CPUC's
intent is to consider continuation of the program in the context
of the IOUs' GRCs.
The current program permits 2,500 megawatts of load to be
enrolled between the three IOUs, at a total maximum cost of $250
million/year. Current enrollment is about 1,400 megawatts. The
last annual cost figure was $163 million. According to the
CPUC, interruptible programs cost ratepayers about $2 billion
between 1990 and 2001.
COMMENTS
1.How are the rates and penalties determined? This bill
requires interruptible rates to "reflect a cost-based pricing
incentive." The standard this would set for the CPUC is
unclear. For example, what cost would the pricing incentive
be based on? The author and the committee may wish to
consider instead requiring that interruptible rates are "cost
effective compared to other available resource options."
This bill sets a specific non-compliance penalty ($9.30 per
kilowatt-hour), which is equivalent to the highest existing
penalty among the three IOUs. While the penalty level is set
in the bill, the CPUC is authorized to change it. Rather than
specifying a penalty which is immediately subject to change,
the author and the committee may wish to consider instead
directing the CPUC to establish and enforce penalties
sufficient to ensure compliance.
2.Are customers who failed to interrupt in 2001 eligible for the
program? The author and the committee may wish to consider
whether customers who have previously been subject to
penalties for non-compliance with interruptible programs
should be eligible for the program.
3.Will the customer be there when needed? This bill provides
that a customer who chooses not to comply substantially with
two consecutive interruption requests will be removed from the
program. That doesn't do much good to the other IOU customers
who are then subject to interruption themselves. The
interruptible program will not be very good insurance unless
it's clear that compliance is mandatory, and the consequences
of non-compliance are severe. The author and the committee
may wish to consider whether customers who fail to comply with
interruption requests should be required to refund to
ratepayers their accrued discounts.
ASSEMBLY VOTES
Assembly Floor (67-4)
Assembly Appropriations Committee (20-0)
Assembly Utilities and Commerce Committee
(13-0)
POSITIONS
Sponsor:
California Large Energy Consumers Association
Support:
BOC Gases
California Business Properties Association
California Chamber of Commerce
California Manufacturers & Technology Association
Praxair, Inc.
Redondo Beach Chamber of Commerce
Southern California Edison
Oppose:
Coalition of California Utility Employees
Lawrence Lingbloom
AB 425 Analysis
Hearing Date: July 8, 2003