BILL ANALYSIS
AB 816
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Date of Hearing: April 1, 2003
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Sarah Reyes, Chair
AB 816 (Reyes) - As Amended: March 25, 2003
SUBJECT : Public Utilities Commission: direct transactions.
SUMMARY : Requires municipal electric utilities that begin to
serve customers within an investor-owned utility's (IOU's)
service area to pay specific costs or "exit fees." Reinstates
the right of retail customers to acquire electricity from
suppliers other than an IOU. Specifically, this bill :
1)Provides that a local publicly owned electric utility that
begins serving electricity to existing or new load in a
service territory of an IOU is responsible for various charges
that have been imposed by law and by the California Public
Utilities Commission (PUC) on other departing electricity
load.
a) The charges are those that would otherwise be imposed on
customers by PUC to pay for Department of Water Resources'
(DWR) electricity purchase costs and electricity contract
obligations that are recoverable from IOU customers in PUC
approved rates.
b) The charges are imposed by PUC to recover a
proportionate share of bond related DWR costs and
electricity purchase contract costs, as well as to recover
an IOU's past undercollections for its electricity
purchases attributable to that customer, and unavoidable
going forward electricity purchase contract costs.
2) Exempts a municipal utility from these charges if it is
serving new customer load within its exclusive electric
service territory, as that territory existed on February 1,
2001.
3)Allows the municipal utility to determine the method by which
to recover the applicable costs from its customers.
4)Reinstates the right of retail end use customers to acquire
electric service from suppliers other than an IOU, once each
of the following conditions are met:
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a) PUC has established a cost responsibility surcharge for
customers that opt for direct transactions.
b) The state has issued revenue bonds to cover DWR
electricity purchase contract costs.
c) IOUs are procuring electricity, and are doing so under
new procurement rules enacted in 2002.
EXISTING LAW:
1)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.
2)Defines a local publicly owned electric utility as a
municipality, a municipal corporation, public utility
district, irrigation district or a joint powers authority that
owns generation or transmission facilities, or furnishes
electric services.
3)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.
4)Suspends the right of retail end use customers to acquire
electricity from providers other than an IOU until DWR no
longer supplies power.
FISCAL EFFECT : Unknown.
COMMENTS :
Background
In 2001, the Legislature enacted AB X1 1 (Keeley)<1> 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
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<1> Chapter 4, Statutes of 2001.
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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"<2> 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.
Exit Fees on Departing Load
PUC is now considering the amount and scope of exit fees with
regard to other classes of load that departs from bundled IOU
service, such as load departing due to customer self generation,
and the like. Last year, the Governor signed AB 117 (Migden)<3>
into law, which expressly made exit fees applicable to any
retail customer that purchases electricity from a community
choice aggregator.<4>
AB 117 (Migden) also clarified the Legislature's intent
concerning recovery of DWR-related costs from retail end-use
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<2> Decision D.02-03-055, March 2002.
<3> Chapter 838, Statutes 2002.
<4> Community aggregation is direct access on a large scale,
similar to formation of a municipal electric utility, except
that IOU transmission and distribution infrastructure continues
to be used by the community aggregation customers.
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customers, by stating, "It is the intent of the Legislature that
each retail end-use customer that has purchased power from an
electrical corporation on or after February 1, 2001, should bear
a fair share of [DWR's] electricity purchase costs, as well as
electricity purchase contract obligations incurred ... that are
recoverable from electrical corporation customers in
commission-approved rates. It is further the intent of the
Legislature to prevent any shifting of recoverable costs between
customers."<5>
Thus, AB 117 (Migden) directs PUC to impose a "fair share" of
cost responsibility on customers who took utility service on or
after February 1, 2001. The amount of the fair share is left to
PUC to determine.
Municipal Departing Load
This bill expressly clarifies that that municipal departing
load, or electric load that leaves bundled IOU service to be
served by a municipal utility, is also responsible for a
fair-share charge, subjecting the departing load to
responsibility for the same surcharge categories set forth in AB
117 (Migden) last year.
The author states that exempting municipal departing load from
exit fees would create an inequitable incentive for cities to
form municipal utilities to avoid substantial bond and power
charges, shifting the financial responsibility to bundled
customers.
Opponents to this bill acknowledge that AB 117 imposes an
obligation on all existing customers to pay their share of the
DWR past and going forward costs. They also contend, however,
that they should be exempt from DWR going forward power charges
because DWR assumed when it was forecasting its power purchase
needs that a certain amount of load would be lost to public
agencies. The record in PUC exit fee proceedings does not
indicate that DWR or its consultants independently assumed load
reductions due to municipalization efforts in the energy
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<5> Pub. Util. Code 366.2 (d)(1).
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forecast.<6>
"Greenfield" Development
Opponents objected to an inference in this bill that all new
municipal electric load, even that which routinely occurs with
new development that has never been served by an IOU, would be
subject to exit fees under this bill. In response to this
objection, the author amended this bill to clarify that no
charges are due when the municipal utility serves new load
within its electric service territory.
Direct Access
Existing law as enacted by AB X1 1 during the height of the
energy crisis called on PUC to temporarily suspend direct access
purchases of electricity until DWR no longer supplies power.
Last year, the Governor signed AB 57 (Wright),<7> which provided
an electricity procurement framework for IOUs that allows for
long term electricity procurement with up front approval of the
procurement plans by PUC. The enactment of AB 57 and the
expiration of DWR's statutory authority to purchase power on
behalf of IOU customers have led IOUs to resume the obligation
to serve and procure electricity for their customers, effective
at the beginning of this year.
Thus, IOUs are now supplying power, and have also assumed
responsibility for the administration of DWR electricity
contracts. As discussed above, PUC has in addition established
an exit fee mechanism that captures costs that might otherwise
be borne by remaining bundled customers; thereby seeking to
achieve bundled customer indifference.
The author states that this is the appropriate time to reinstate
the right of retail customers to begin or to continue receiving
some or all of their power from electricity providers other than
an IOU. The author and proponents note that many direct access
customers are nearing the expiration of their contract for
electricity service with their providers. These customers may
be forced back to IOU bundled service, upsetting load
predictions that may have been made by the IOU, if the right to
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<6> The record at PUC proceedings indicates that DWR's
forecasters, Navigant, testified, upon examination by counsel
for the opponents, that they saw no reason, given the turmoil in
the market at the time, to factor municipalization into their
purchasing forecasts. (McDonald testimony, October 9, 2002,
p.1497-98).
<7> Chapter 835, Statutes of 2002.
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choose electricity suppliers is called into question when the
existing customers attempt to renew the contracts. This bill
clarifies that the right of retail customer choice is reinstated
if the PUC has established the appropriate exit fee mechanism
and IOUs are once again supplying power to their customers.
Finally, the author and proponents state that direct access
customers could face involuntary return to IOU bundled service
at an increased price at the end of their DA contracts without
this statutory clarification -- and would nonetheless also be
responsible for exit fees despite their return to bundled IOU
electric service.
Technical Amendment
To limit responsibility for exit fee payment, on page 3, line
21, insert language clarifying that the responsibility attaches
if the municipal utility begins serving load in IOU territory
after February 1, 2001.
On page 3, lines 28-29, insert . . . "when it new load within
its exclusive service territory as that exclusive electric
service territory existed . . . "
REGISTERED SUPPORT / OPPOSITION :
Support
Alliance for Retail Energy Markets
APS Energy Services
California Manufacturers & Technology Association
Pacific Gas & Electric (if amended)
San Diego Regional Chamber of Commerce
School Project for Utility Rate Reduction
Strategic Energy
Southern California Edison
Sempra (if amended)
Opposition
California Municipal Utilities Association
California Farm Bureau Federation
City of Riverside Public Utilities
Northern California Power Authority
Redding Electric Utility
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Analysis Prepared by : Paul Donahue / U. & C. / (916) 319-2083