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