BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN AB 426 - Cox/Richman Hearing Date: June 22, 2004 A As Amended: June 14, 2004 Non-FISCAL B 4 2 6 DESCRIPTION This bill prohibits the California Public Utilities Commission (CPUC) from imposing any "cost responsibility surcharge" on a customer of a local publicly owned electric utility (muni) if the customer's service location has not previously received service from an investor owned utility (IOU). BACKGROUND "Municipalization" of electric service is not a new phenomenon. IOUs have been subject to losing customers and service territory to munis for as long as private and public utilities have co-existed, which is almost as long as electric service has existed. Munis may form or expand in areas where IOUs have customers and infrastructure or in areas of new development without IOU customers or infrastructure ("greenfields"). If existing IOU assets are taken by the muni's formation or expansion, the value is resolved through the condemnation process. Concerns about the need to make individual customers responsible for utility charges on a "nonbypassable" basis erupted about 10 years ago, as the state was considering restructuring the electric industry to allow open competition for IOUs' retail customers. Although the concern was primarily related to the potential for large losses of customers to direct access, which was the new threat presented by electric restructuring, preexisting alternatives to IOU service, such as self-generation and municipalization, were also implicated in the debate. The issue addressed by this bill represents the progression of the nonbypassable charge debate to its most abstract, into areas where customers and service do not now exist. The question posed by the bill is whether a new customer at a location which never took service from an IOU nevertheless should compensate the IOU for costs incurred by the IOU to serve its customers generally. The first time a nonbypassable charge policy made its way into state law was in AB 1890 (Brulte), Chapter 854, Statutes of 1996. AB 1890 said the competition transition charge (CTC), intended to ensure equitable recovery of IOUs' generation-related obligations, was nonbypassable. As for munis, AB 1890 said an IOU customer's obligation to pay the CTC could not be avoided by muni formation or annexation. However, the CPUC never adopted, and the IOUs never applied, a mechanism to collect CTC from customers lost to munis. The next round of cost recovery concerns came with the Department of Water Resources (DWR) long-term electricity contracts. AB 1X (Keeley), Chapter 4, Statutes of 2001, authorized DWR to enter into power contracts. Rather than establish a nonbypassable charge, AB 1X addressed the concern about subsequent loss of customers to direct access by directing the CPUC to suspend direct access. AB 1X did not address loss of load to municipalization or self-generation. AB 117 (Migden), Chapter 838, Statutes of 2002, subsequently clarified AB 1X to say that every customer served by DWR should bear a "fair share" of DWR's costs. Since the passage of AB 1X and AB 117, the CPUC has issued several orders establishing responsibility for DWR and IOU procurement costs for customers departing IOU service for direct access, self-generation and muni service. Collectively, the charges to recover these costs are known as the cost responsibility surcharge (CRS). In July 2003, the CPUC issued a decision establishing a CRS applicable to customers departing IOU service for muni service (Decision 03-07-028). The policy basis for the CPUC's application of the CRS to muni customers is the following provision of AB 117: It is the intent of the Legislature that each retail end-use customer that has purchased power from an electrical corporation on or after February 1, 2001, should bear a fair share of (DWR's) electricity purchase costs, as well as electricity purchase contract obligations incurred as of (January 1, 2003), that are recoverable from electrical corporation customers in commission-approved rates. It is further the intent of the Legislature to prevent any shifting of recoverable costs between customers. Under AB 117, to the extent a greenfield customer has not "purchased power from an electrical corporation on or after February 1, 2001," the CRS, at least as it relates to DWR costs, should not apply. However, the CPUC decision only partially excluded greenfield customers from the CRS. The decision excluded new load served by a muni providing service as of February 1, 2001 from the CRS, but not new load served by munis formed after that date. In August, the CPUC granted several munis' request for rehearing of Decision 03-07-028, but limited review to the issue of where to draw the line on new load (Decision 03-08-076). The decision granting rehearing asked for more evidence on how to allocate the exemption for new load. The rehearing is pending. Most recently, SB 772 (Bowen), Chapter 46, Statutes of 2004, addressed recovery of a bond charge to finance a portion of PG&E's bankruptcy recovery costs. SB 772 requires the CPUC to ensure collection of PG&E's recovery costs from all electric consumers in PG&E's current service territory, with specified exceptions. As for munis, SB 772 generally provides that recovery costs are unavoidable by customers taking service from a muni that forms in, or expands into, PG&E's current service territory. However, SB 772 requires the CPUC to determine the extent to which recovery costs are recoverable in greenfield areas served by a muni. Munis objected to SB 772 on the basis it could lead to PG&E billing customers served by a muni that annexes or overlaps a portion of PG&E's current service territory. In the Assembly, SB 772 alternately included, then excluded, greenfields from the obligation to pay recovery costs. In a compromise, the bill ultimately was amended to not decide the issue. Instead, except for a limited exemption for greenfield load served by city-owned utilities, the bill deliberately requires the CPUC to decide the greenfield issue by applying its pending decision on responsibility for DWR costs. COMMENTS 1.What is a cost responsibility surcharge? CRS is a term of art coined by the CPUC with no statutory definition. Whether this bill succeeds in its intent to prevent the application of the CTC, DWR charges, the PG&E recovery bond charge, or any other charge depends entirely on the CPUC's definition of the CRS. Since this meaning of this bill hinges on the meaning of that term, the author and the committee may wish to consider defining CRS, or specifically referencing the charges that may not be imposed. The author and the committee may also wish to consider whether a muni customer never served by an IOU should be responsible for any IOU charge. If not, the bill could simply prohibit the CPUC from imposing any charge. 2.Specific sections should be cited. Rather than say "Notwithstanding any other law," the author and the committee may wish to consider whether this bill should reference specific statutes authorizing the charges greenfield muni customers would avoid - i.e., "Notwithstanding Sections 366.2, 369 and 848.1." 3.Did DWR buy power for IOUs to serve greenfields? IOUs contend DWR bought power on behalf of would-be greenfield customers, so when greenfields are developed and customers materialize, those customers should pay for the DWR power whether they are IOU customers, in which case they would consume a share of the DWR power, or muni customers, in which case they would not consume DWR power. In fact, DWR (and IOUs) forecasted load growth, but they also forecasted loss of load to due to a variety of factors, including municipalization. 4.Same issue under consideration at CPUC. IOUs argue this bill interferes with an existing CPUC proceeding. The flip side of that argument is this bill is necessary to correct the CPUC's misapplication of AB 117. PRIOR VOTES Senate Agriculture and Water Resources Committee (10-2)* Senate Energy, Utilities and Communications Committee (5-2)* Assembly Floor (71-4)* Assembly Appropriations Committee (23-1)* Assembly Utilities and Commerce Committee (9-2)* Assembly Water, Parks and Wildlife Committee (12-5)* *Votes reflect a previous, unrelated version of the bill. POSITIONS Sponsors: California Municipal Utilities Association Northern California Power Agency Southern California Public Power Authority Support: City of Roseville Sacramento Municipal Utility District Oppose: Pacific Gas and Electric Company Sempra Energy Southern California Edison Lawrence Lingbloom AB 426 Analysis Hearing Date: June 22, 2004