BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 426|
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THIRD READING
Bill No: AB 426
Author: Cox (R), et al
Amended: 8/12/04 in Senate
Vote: 21
SENATE ENERGY, U.&C. COMMITTEE : 6-0, 6/22/04
AYES: Bowen, Morrow, Alarcon, Battin, McClintock, Murray
NO VOTE RECORDED: Dunn, Sher, Vasconcellos
ASSEMBLY FLOOR : Not relevant
SUBJECT : Local publicly owned electric utilities: cost
responsibility
surcharge
SOURCE : California Municipal Utilities Association
Northern California Power Agency
Southern California Public Power Authority
DIGEST : This bill prohibits the State Public Utilities
Commission from imposing any cost, including any cost
responsibility surcharge on a customer of a local publicly
owned electric utility if the customer's service location
has not previously received service from an investor owned
utility.
Senate Floor Amendments of 8/12/04 add co-authors and
broaden application of bill to any cost imposed by the
State Public Utilities Commission on customers of a
non-jurisdictional local publicly owned (e.g., municipal)
electric utility.
CONTINUED
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ANALYSIS : The State Public Utilities Commission (PUC)
has regulatory authority over electrical corporations.
Under current law, the PUC has imposed a cost
responsibility surcharge on municipal departing load, as
defined.
Existing law, relative to electrical restructuring,
prohibits a local publicly owned electric utility (muni)
from providing electric service to a retail customer unless
the customer first confirms in writing an obligation to pay
a nonbypassable generation-related transition charge.
This bill prohibits the PUC from imposing any cost,
including any cost responsibility surcharge on a customer
of a muni if the customer's service location has not
previously received service from an electrical corporation.
Background
"Municipalization" of electric service is not a new
phenomenon. Investor owned utilities (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
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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 PUC 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
State 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 PUC 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 PUC issued a decision establishing a CRS
applicable to customers departing IOU service for muni
service (Decision 03-07-028). The policy basis for the
PUC's application of the CRS to muni customers is the
following provision of AB 117:
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"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 PUC
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 PUC 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 PUC 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 PUC 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
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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 PUC to
decide the greenfield issue by applying its pending
decision on responsibility for DWR costs.
Comments
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.
NOTE: Amendments of 8/12/04 broaden application of the
bill to any cost imposed by the PUC on customers
served by a municipal electric utility, rather
than just a "cost responsibility surcharge." This
amendment improves the clarity of the bill, since
cost responsibility surcharge is a term of art
coined by the PUC with no statutory definition.
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.
Same Issue Under Consideration at PUC . IOUs argue that
this bill interferes with an existing PUC proceeding.
The flip side of that argument is this bill is necessary
to correct the PUC's misapplication of AB 117.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/9/04)
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California Municipal Utilities Association (co-source)
Northern California Power Agency (co-source)
Southern California Public Power Authority (co-source)
City of Roseville
Sacramento Municipal Utility District
OPPOSITION : (Verified 8/9/04)
Coalition of California Utility Employees
Pacific Gas and Electric Company
Sempra Eneregy
Southern California Edison
NC:cm 8/12/04 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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