BILL ANALYSIS
AB 428
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Date of Hearing: April 28, 2003
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Sarah Reyes, Chair
AB 428 (Richman) - As Amended: April 23, 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)States legislative intent to establish a market structure in
which the electrical corporations have an obligation to
provide bundled electric commodity procurement service only to
core retail end-use customers and allow noncore retail end use
customers to elect to have their electricity commodity
procured by the electrical corporations for a fixed term at
rates that fully compensate the electrical corporations for
the incremental costs of procuring the commodity.
2)Defines bundled core customers as all retail end use customers
of an electrical corporation whose (a) demand is less than
500kw or (b) a maximum peak demand determined by the
California Public Utilities Commission.
3)Defines non-core customers as all retail end use customer of
an electrical corporation whose (a) demand is greater than
500kw or (b) a maximum peak demand as determined by PUC.
4)Allows noncore customers to aggregate their peak demand from
multiple meters located anywhere in an electrical
corporation's service territory.
5)Specifies that customers receiving service from electricity
suppliers on January 1, 2006 are considered noncore customers,
except any customer exempt from any direct access surcharge
paid by other noncore customers, shall retain that exemption
until the time they return to bundled utility service.
6)Requires PUC beginning on January 1, 2009 to reduce the
maximum peak demand threshold for defining noncore customers
by converting the bundled core customers with the largest peak
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demand prior to reduction of the threshold to noncore
customers in sufficient amounts so that forecast load
attributable to converted customers is forecast to meet all
growth in electricity demand.
7)Requires PUC to reduce the maximum peak demand threshold every
two (2) years beginning on January 1, 2009 by an amount
sufficient to convert the bundled core customers - with the
largest peak demand prior to the reduction of the threshold -
from core to noncore.
8)Specifies that PUC may not reduce the maximum peak demand
threshold beyond 250kw maximum peak demand for the purpose of
moving customers from core to noncore and sets December 31,
2007 as the date of completion for this proceeding.
9)Requires PUC, on or before January 1, 2005, to adopt
regulatory criteria for electrical corporations to determine
the appropriate composition of electricity supplies for their
bundled core customers and noncore customers who stay with the
electrical corporation for at least one (1) year. Noncore
customers have until July 1, 2005 to decide to stay with the
electrical corporation or go to an electricity supplier.
10)Specifies that 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.
11)Specifies that PUC shall adopt rules that protect the core
customer of an electrical corporation from cost shifting
resulting from:
a) Direct transactions;
b) Customers who depart the electrical corporation's system
in order to be served by a competing publicly owned
utility;
c) Undercollections of utility costs of service;
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d) Costs incurred by DWR to serve customers who are no
longer core customers.
12)Specifies that retail end use customers purchasing
electricity from another electric service provider or
electricity provider shall reimburse the electrical
corporation that previously served that customer for all power
purchased for that customer, DWR bond costs, past
unrecoverable undercollections, and PUC approved rates for
estimated net unavoidable power purchase contracts.
13)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 1 year and on terms approved
by PUC that reimburse the electrical corporation for all costs
of providing electrical service.
14)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.
15)Requires noncore customers to provide an electrical
corporation and DWR at least six (6) month's notice regarding
intent to move to direct access.
16)Specifies that provisions be established for prompt and full
cost recovery for the electrical corporation and DWR in the
event that a noncore customer returns back to the core
portfolio. Rates and tariffs for full cost recovery would be
required to be tariffed separately from the costs of the
noncore portfolio of the electrical corporation for not less
than one (1) year or the tariffed rate or whichever is higher.
17)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 the
proportionate share of the electrical corporations and DWRs
power purchased for that customer, DWR bond costs, past
unrecoverable undercollections, and PUC approved rates for
estimated net unavoidable power purchase contracts.
18)Requires PUC to adopt rules to ensure full cost recovery for
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an electrical corporation for residential customers who comes
back to the core portfolio after January 1, 2006. Residential
customers coming back to the core portfolio would have to stay
in bundled service a least one (1) year unless they move out
of the service territory.
19)Requires PUC on or before January 1, 2012 to adopt rules that
allow nonresidential bundled core customers to elect to be
served by direct transactions in a manner that fully accounts
for the proportionate share of the electrical corporation and
DWRs power purchased for that customer, DWR bond costs, past
unrecoverable undercollections, and PUC approved rates for
estimated net unavoidable power purchase contracts.
20)Requires PUC to adopt rules to ensure full cost recovery for
an electrical corporation for nonresidential customers who
comes back to the core portfolio after January 1, 2012.
Nonresidential customers coming back to the core portfolio
would have to stay in bundled service a least one (1) year
unless they move out of the service territory.
21)Specifies that a noncore customer shall not be responsible
for any new transition costs or procurement related
obligations incurred on behalf of the core portfolio during
the period when the customer was being served by direct
transactions, except when the costs were incurred when the
noncore customer had elected to receive core portfolio service
after January 1, 2005 and costs cover the actual costs of
electricity used.
22)Deletes the prohibition requiring the retail end use
customers from seeking direct transactions for energy supplies
until DWR no longer supplies power.
EXISTING LAW :
1)Authorizes DWR to administer existing electricity purchase
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
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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) 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 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
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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 500kw or less, will provide a jump-start to the ailing energy
market and spur capital investment by energy service providers
and investor owned utilities.
Is the current 1-year contractual obligation for residential and
nonresidential customers a sufficient amount of time? This bill
requires residential and nonresidential customers who elect to
go back to core service to stay with the IOU for a minimum of
one (1) year. Is this enough time to stabilize the affects of
having customers moving off and on the core portfolio or will
this exacerbate the instability that currently exists in the
marketplace?
Converting core customers to noncore customers : This bill
requires PUC, beginning on January 1, 2009, to start converting
the largest peak demand users from core to noncore. It is
unclear whether this would result in a large percentage of
customers moving to the noncore portfolio at once. Furthermore,
the idea of forcibly moving customers from the IOU can result in
a situation where there will not be enough generation capacity
in the marketplace, regardless of whether the anticipated load
was forecasted or not forecasted. We will not have any idea of
how many customers are going to jump to direct access, what the
market will look like at that time, or whether the state will be
facing a 100 year storm or drought.
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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.
Under this bill noncore customers who elect choose to go to
direct access after July 1, 2005 must be obligated to remain a
direct access customer of a energy service provider or IOU for a
minimum of one (1) year. Based on information provided to the
Committee it seems the marketplace doesn't currently offer such
short-term contracts and instead the minimum contracts being
offered are typically for 5, 10 or more years. The basis for
this is due to the market volatility as a result of price
manipulations, higher than average natural gas costs, shortage
of generators and the reluctance by investors to provide money
to energy companies for investments in infrastructure.
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
California Business Properties Association
California State University
Sempra (support if amended)
PG&E (support if amended)
Alliance for Retail Energy Markets (support if amended)
California Manufacturers &Technology Association (support if
amended)
Opposition
California Coalition of Utility Employees (CUE)
Association of California Water Agencies
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Southern California Edison
Analysis Prepared by : Daniel Kim / U. & C. / (916) 319-2083