BILL ANALYSIS
AB 428
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Date of Hearing: April 21, 2003
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Sarah Reyes, Chair
AB 428 (Richman) - As Introduced: February 14, 2003
SUBJECT : Electrical corporations: core supply portfolio: core
bundled customers.
SUMMARY : Establishes a new energy program for the purpose of
moving specified customers of investor owned utilities (IOUs)
off the grid to enable them to purchase energy through direct
access or long-term contracts. Specifically, this bill :
1)Defines bundled core customers as customers whose (a) demand
is less than 500kw or (b) a maximum peak demand determined by
the California Public Utilities Commission (PUC) every two
years beginning on January 1, 2008, who are not being served
or elect not to served through direct transactions.
2)Defines non-core customers as customers whose (a) demand is
greater than 500kw or (b) a maximum peak demand as determined
by PUC every two years beginning on January 1, 2008.
3)Requires PUC to reduce the maximum peak demand threshold every
two years beginning on January 1, 2008 by an amount sufficient
to convert the bundled core customers - with the largest peak
demand prior to the reduction of the threshold - for the
purpose of moving them from core to noncore.
4)Specifies that PUC may not reduce the maximum peak demand
threshold beyond 100 kw maximum peak demand for the purpose of
moving customers from core to noncore.
5)Requires PUC, on or before January 1, 2006, to adopt
guidelines for electrical corporations to determine the
appropriate composition of electricity supplies for their core
portfolio. The core portfolio shall include (a) output of
generation assets retained by the electrical corporation under
commission regulation, (b) electricity purchased under
contract by the Department of Water Resources (DWR) to supply
bundled customers, (e) other supplies purchased by an
electrical corporation under contract to serve the needs of
its core customers, and (d) any spot market supplies required
to provide for core demand.
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6)Specifies that PUC shall ensure that noncore customers are
responsible for an appropriate amount of costs of DWR
contracts as long as it exceeds the average costs of the
remaining supply components of the core supply portfolio.
7)Specifies that from January 1, 2006 electricity corporations
have no obligation to serve any noncore customer except by
contract for a term not less than 3 years and on terms
approved by PUC that reimburse the electrical corporation for
all costs of providing electrical service.
8)Specifies that from January 1, 2006 that noncore customers may
not be served from the core portfolio. Noncore customers may
elect to be served through direct transactions or by contract
with an electrical corporation. Customers may aggregate their
load at multiple locations in order to be classified as
noncore.
9)Requires any noncore customer from January 1, 2006 to provide
the electrical corporation at least 18 months advance written
notice if they choose to remain with or come back to the core
portfolio.
10)Requires PUC on or before January 1, 2006 to adopt rules that
allow residential bundled core customers to elect to be served
by direct transactions in a manner that fully accounts for an
electrical corporations cost of service, including payments
for a proportionate share of system costs, bond payments, and
public benefit charges.
11)Requires PUC on or before January 1, 2006 to adopt rules that
allow nonresidential bundled core customers to elect to be
served by direct transactions in a manner that fully accounts
for an electrical corporations cost of service, including
payments for a proportionate share of system costs, bond
payments, and public benefit charges.
12)Deletes the prohibition requiring the retail end use
customers from seeking direct transactions for energy supplies
until the DWR no longer supplies power.
EXISTING LAW :
1)Authorizes DWR to administer existing electricity purchase
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contracts, and to sell power to retail end use customers at
costs not to exceed DWR's acquisition costs.
2)Suspends the right of retail end use customers to acquire
electricity from providers other than an IOU until DWR no
longer supplies power.
3)Provides that various classes of customers who have left IOU
electric service, including those who have aggregated their
electric loads with community choice aggregators, are
responsible for a fair share of DWR electricity purchase costs
and purchase contract obligations of the IOUs from which they
are departing.
FISCAL EFFECT : Unknown.
COMMENTS :
Background: The core/noncore concept is derived from natural
gas service, where customers are divided into core and noncore
classes. Gas utilities are required to procure and deliver a
portfolio of gas supplies sufficient to service their core
customers. Noncore customers must arrange for procurement and
transportation of their own gas supplies.
As part of restructuring of the electric industry, AB 1890
(Brulte), Chapter 856, Statutes of 1996, authorized retail
customers to purchase energy directly from suppliers. Under AB
1890 customers were allowed to choose alternate providers of
energy but IOUs obligation to serve all remained in place. The
obligation to serve provided customers the choice to remain
with, or return to, bundled IOU service which included a rate of
return for energy provided by IOUs from their retained
generation, power purchase contracts and spot market purchases.
In 2001, the Legislature enacted AB X1 1 (Keeley), [Chapter 4,
Statutes of 2001], in response to the electricity crisis, during
which Pacific Gas & Electric (PG&E) and Southern California
Edison (SCE) became financially unable to continue purchasing
electricity due to extraordinary increases in wholesale energy
prices. AB X1 1 required DWR to procure electricity on behalf
of the customers in the service territories of IOUs. Among
other things, AB X1 1 also called on PUC to suspend the right of
customers to acquire electricity directly from suppliers other
than IOUs. DWR began purchasing electricity for the state on or
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about February 1, 2001.
In September 2001, PUC issued an order suspending the right to
acquire direct access (DA) electricity, effective September 21,
2001. In later proceedings, PUC determined that bundled service
customers of IOUs should not be burdened with additional costs
due to cost shifting from the significant migration of customers
from bundled to DA load prior to September 2001. PUC stated a
goal to prevent cost shifting, which meant, "bundled service
customers are indifferent" to the departure of these customers.
PUC initiated proceedings to impose charges on DA load in order
to prevent cost shifting. These charges have been known
interchangeably as a "cost responsibility surcharge" or "exit
fees." Included among the surcharge categories are bond-related
costs and electricity contract costs associated with procurement
of power by DWR.
What this bill does is to provide for the construction of
electric generation capacity to meet the needs of a growing
state and replace this state's most polluting and inefficient
generation plants by phasing in retail market for the largest,
most financially stable customers.
The main idea behind this bill is based on the theory that
moving large end users off the core portfolio, which is defined
as 500 kW or more, will provide a jump-start to the ailing
energy market and spur capital investment by energy service
providers and investor owned utilities.
Why are core customers excluded from being required to have
long-term contracts? This bill requires noncore customers who
are serviced by an IOU to first sign a contract for a term not
less than three years. The premise behind a 3-year contract is
to ensure that the IOU can recoup its investment costs for
providing services to noncore customers.
According to this bill PUC is required to reduce the maximum
demand threshold every two years in order to allow more retail
end users to opt out of the core portfolio, if this is the case
then won't the customers who are left in the core portfolio be
paying a higher cost in long run (i.e., IOU generation assets
and DWR contracts) as the number of users decreases?
Shouldn't this bill require customers in the core portfolio to
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similar long-term contracts that apply to noncore customers in
order to ensure a sufficient rate of return for an IOU as well
as not "passing the buck" to core customers who can't leave?
Will customers be better served in the core or noncore
portfolios? The intent of this bill is to move a large portion
of retail end users to be noncore customers but there are
significant concerns about whether most of them would rather
choose to remain in the core portfolio.
This bill mentions that noncore customers who elect to remain
with, or return to, service from its electrical corporation
rather than engage in direct transactions shall provide the
electrical corporation with at least 18 months advance written
notice.
This provision allowing noncore customers to remain in the core
portfolio is in the section of this bill that commences in
January 1, 2006, but is it the author's intent to only allow
noncore customers to make this choice after this date or at any
point in time before?
Is the energy market competitive enough to allow noncore
customers to have a real choice? The intent behind this bill is
to move certain large end users off the core portfolio and into
the noncore portfolio but is the market stable enough to ensure
that these customers would be able to negotiate the best prices
for energy? As of recently market manipulation was uncovered in
documents released by the Federal Energy Regulatory Commission
and two IOUs were still in bankruptcy proceedings as a result of
buying power during the energy crises.
REGISTERED SUPPORT / OPPOSITION :
Support
University State University
Alliance for Retail Energy Markets (Support if Amended)
PG&E (Support if Amended)
Opposition
California Coalition of Utility Employees
Association of California Water Agencies
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Analysis Prepared by : Daniel Kim / U. & C. / (916) 319-2083