BILL ANALYSIS
AB 428
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Date of Hearing: May 21, 2003
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Darrell Steinberg, Chair
AB 428 (Richman) - As Amended: April 23, 2003
Policy Committee:
UtilitiesVote:11-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill defines bundled core customers and non-core
electricity customers and establishes a process for non-core
customers to obtain the electricity through direct access
purchases with suppliers other than the investor-owned utilities
(IOUs). Specifically, this bill:
1)Defines bundled core customers as those customers of an
electrical corporation whose peak demand is less than either
500kw or a maximum peak demand determined by the Public
Utilities Commission (PUC) and who are not purchasing
electricity from another source (through direct access
contracts).
2)Defines non-core customers as those whose peak demand is
greater than either 500kw or the maximum peak demand
determined by PUC.
3)Requires the PUC, by January 1, 2005, to adopt regulatory
criteria for electrical corporations to determine the
appropriate composition of electricity supplies for their
bundled core customers, for those noncore customers who stay
with the electrical corporation for at least one year, and for
providing adequate reserve capacity.
4)Requires the PUC to adopt rules protecting core customers from
any shifting of cost - as a result of direct transactions or
departures from IOU service to a publicly-owned utility - for
Department of Water Resources electricity bonds and
electricity purchase contracts and for past IOU
undercollections and electricity purchase contracts.
AB 428
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5)Requires the PUC, by January 1, 2005, to adopt rules for a
tariff on non-core customers, including: (a) a requirement to
decide by July 1, 2005, whether to choose direct access or
remain with the IOU for at least one year; (b) giving six
months notice to the IOU prior to going direct access;
insuring recovery of DWR and IOU cost obligation described in
(4) above; and (d) requirement that a non-core customer
returning to IOU service pay either the IOU's actual costs of
supplying power for that customer or the current tariffed
rate, whichever is higher.
6)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 one year, and on terms
approved by the PUC that reimburse the electrical corporation
for all costs of providing electrical service.
7)Stipulates that, starting January 1, 2006, non-core customers
may not be served from the IOU's core service power portfolio
established pursuant to (3) above.
8)Requires the PUC, in a preceding to be completed by December
31, 2007, to, beginning on January 1, 2009, reduce the maximum
peak demand threshold for defining noncore customers by
converting those current bundled core customers with the
largest peak demand prior to noncore customers in sufficient
amounts so that forecast load attributable to converted
customers meets (a) the forecasted five-year growth in
electricity demand plus (b) any reduction in supply
attributable to Department of Water Resources electricity
purchase contracts.
9)Specifies that the PUC may not reduce the maximum peak demand
threshold below 250kw for the purpose of moving customers from
core to noncore.
10)Requires the PUC, by January 1, 2006, to adopt rules that
allow residential bundled core customers to elect to be served
by direct transactions, and to adopt similar rules for
nonresidential bundled core customers before January 1, 2012.
FISCAL EFFECT
AB 428
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This bill requires the PUC to undertake several new activities
over a multi-year period, which will likely require some
additional staff resources. The additional costs are unknown,
but assuming only three additional positions, the annual cost
would be around $250,000.
COMMENTS
1)Background and Purpose . 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 electricity either from the
investor-owned utilities or directly from other electricity
suppliers. In response to the electricity crisis in 2001,
ABX1 1 (Keeley) in part called on the PUC to suspend direct
access purchases, which the PUC did in a September 2001
decision.
In later proceedings, the PUC determined that bundled service
customers of the IOUs should not be burdened with additional
costs due to cost shifting from the significant migration of
customers from bundled to direct access prior to September
2001. The PUC subsequently imposed charges on direct access
load, known 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.
According to the author, this bill is intended to provide for
the construction of electric generation capacity to meet the
increased demand and to replace this state's most polluting
and inefficient generation plants by phasing in a retail
market for the largest, most financially stable customers.
The 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.
2)Opposition . The California Coalition of Utility Employees
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(CUE), who believe the bill will make the IOUs uncertain about
their future demand and unable to make long-term commitments
of finance new generation either directly or under contract,
maintains that AB 428 is essentially "tinkering with
[California's] failed electric deregulation."
Southern California Edison believes the bill's premise of
creating a retail market to provide an incentive for
investment in new generation capacity is fundamentally flawed.
Edison maintains that the financing of new generation
requires a stable and predictable customer base, and believes
that AB 428 will instead destabilize the customer base.
3)Related Legislation . AB 816 (Reyes), also on today's
committee agenda, reinstates the direct access purchase option
for IOU customers with 500kw or more of demand.
SB 888 (Dunn), currently pending in the Senate Appropriations
Committee, generally repeals the electrical restructuring of
AB 1890, including direct access provisions. At the time this
analysis was written, the author was intending to amend the
bill to, in part, require the PUC to prepare a core/non-core
proposal for the Legislature's consideration in 2004. This
might be the best approach to this issue.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081