BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 428
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          ASSEMBLY THIRD READING
          AB 428 (Richman and Canciamilla)
          As Amended June 2, 2003
          Majority vote 

           UTILITIES AND COMMERCE     11-0 APPROPRIATIONS      24-0        
           
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          |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  








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            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  








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            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  








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          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 



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