BILL ANALYSIS AB 428 Page 1 ASSEMBLY THIRD READING AB 428 (Richman and Canciamilla) As Amended June 2, 2003 Majority vote UTILITIES AND COMMERCE 11-0 APPROPRIATIONS 24-0 ----------------------------------------------------------------- |Ayes:|Reyes, Richman, Calderon, |Ayes:|Steinberg, Berg, Kehoe, | | |Campbell, Canciamilla, | |Corbett, | | |Diaz, | |Daucher, Diaz, Firebaugh, | | |La Malfa, Levine, Maddox, | |Goldberg, | | |Nunez, Ridley-Thomas | |Haynes, Leno, Maldonaldo, | | | | |Nation, Chan, Nunez, | | | | |Pacheco, Pavley, | | | | |Ridley-Thomas, Runner, | | | | |Samuelian, Simitian, | | | | |Wiggins, Yee, Laird | | | | | | ----------------------------------------------------------------- SUMMARY : 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. 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 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 PUC to adopt rules protecting core customers from any AB 428 Page 2 shifting of cost, as a result of direct transactions or departures from investment owned utility (IOU) service to a publicly-owned utility, for Department of Water Resources (DWR) electricity bonds and electricity purchase contracts and for past IOU undercollections and electricity purchase contracts. 5)Requires 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 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 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 IOU's core service power portfolio established pursuant to 3) above. 8)Requires 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; and, b) any reduction in supply attributable to Department of Water Resources electricity purchase contracts. 9)Specifies that PUC may not reduce the maximum peak demand threshold below 250kw for the purpose of moving customers from core to noncore. 10) Requires PUC, by January 1, 2006, to adopt rules that allow residential bundled core customers to elect to be AB 428 Page 3 served by direct transactions, and to adopt similar rules for nonresidential bundled core customers before January 1, 2012. FISCAL EFFECT : Requires PUC to undertake several new activities over a multi-year period resulting in additional staff resources. The additional cost to PUC would be around $250,000. COMMENTS : 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 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 AB 428 Page 4 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. Analysis Prepared by : Daniel Kim / U. & C. / (916) 319-2083 FN: 0001611