BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 816 - Reyes Hearing Date:
July 8, 2003 A
As Amended: July 2, 2003 FISCAL B
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DESCRIPTION
Existing law:
1.Authorizes retail competition (direct access) within the
service areas of the investor-owned utilities (IOUs) (AB 1890
(Brulte), Chapter 856, Statutes of 1996).
2.Requires the California Public Utilities Commission (CPUC) to
suspend the right of IOU customers to acquire direct access
service until the Department of Water Resources (DWR) no
longer supplies power to IOU customers (AB 1X (Keeley),
Chapter 4, Statutes of 2001). Pursuant to AB 1X, the CPUC has
suspended direct access as of September 20, 2001.
3.Declares the intent of the Legislature that all customers
taking service from an IOU after the enactment of AB 1X bear a
fair share of specified DWR costs and that any cost shifting
between customers be prevented (AB 117 (Migden), Chapter 838,
Statutes of 2002).
This bill:
1.States the intent of the Legislature to enact subsequent
legislation conforming to a pending CPUC decision adopting a
cost responsibility surcharge (CRS) for customers leaving IOU
service for a new municipal utility, provided that the
decision will not result in cost shifting to IOU bundled
service customers.
2.Reinstates the AB 1890 direct access statutes by repealing AB
1X's direction to suspend direct access.
3.Establishes additional provisions directing the CPUC to
reinstate direct access only for customers with loads of 500
kilowatts (kW) or more, subject to five specified conditions
which appear to have been met already.
4.Provides that existing direct access customers who are exempt
from the CRS will remain exempt.
5.Permits aggregation of multiple customers under single
ownership to meet the 500 kW threshold. Directs the CPUC to
implement aggregation rules by June 23, 2004.
6.Requires the CPUC to set the amount of direct access permitted
to minimize the potential that an IOU will enter into
commitments that will be rendered unnecessary or excessive by
customers departing for direct access.
7.Requires the CPUC to adopt rules to implement the
reinstatement of direct access, including notice requirements
imposed as a condition of direct access, and provisions to
ensure the prompt recovery by an IOU of costs incurred to
reinstate and administer direct access.
BACKGROUND
As part of the restructuring of the electric industry, AB 1890
authorized direct access. To avoid the dysfunctional spot
market that financially decimated the IOUs and threatened
catastrophic rate increases, AB 1X established a structure to
permit DWR to buy needed electricity for IOU customers under
long-term contracts. To ensure the predictable revenue stream
necessary for long-term contracts, the issuance of
ratepayer-backed revenue bonds, and prevent cost-shifting from
direct access to bundled service customers, the CPUC was
directed to suspend direct access to prevent additional
migration of IOU customers. After a seven-month delay, the CPUC
suspended direct access on September 20, 2001.
Between January and June 2001, the vast majority of customers
previously served by direct access providers returned to IOU
service, benefiting from retail rates which were lower and more
stable than market prices. However, between July 1, 2001 and
September 20, 2001, thousands of predominantly large industrial
customers, who had taken service from the state at below-market
rates, departed for direct access as market conditions improved.
During the July 1 to September 20 period, direct access
increased from approximately 2% to approximately 13% of the
total IOU load. Direct access load continues to grow due to the
CPUC's liberal interpretation of the Legislature's direction to
suspend direct access, including allowing customers to begin
direct access service after the suspension date and switch
between bundled service and direct access service.
Meanwhile, the CPUC has proposed to dedicate a share of bundled
customer rates to a loan program to defer direct access
customers' payment of DWR and IOU procurement costs. In a
decision issued in November 2002 (D.02-11-022), the CPUC capped
the payment for these costs applicable to direct access
customers at 2.7 cents per kilowatt hour. The CPUC majority
reasoned such a cap was necessary to maintain the viability of
existing direct access contracts.
The 2.7 cent charge won't pay back what direct access customers
owe for DWR power already delivered, or for DWR operating costs
in the next few years, so a revenue shortfall or
"under-collection" results. Since payment of DWR's costs (bond
payment and ongoing revenue requirement) can't be postponed, the
CPUC decision shifts the obligation to pay any shortfall from
direct access customers to each IOU's bundled customers, be they
residential, agricultural, commercial or industrial.
According to the CPUC, the direct access shortfall as of January
1, 2003 was $609 million. The shortfall is expected to continue
to grow for several years. Over time, as DWR costs decline,
direct access customers' payments are projected to catch up and
pay off this under-collection. In the meantime, IOU customer
rates will have to maintained at a level high enough to support
this "forced loan" to direct access customers.
In addition, the CPUC is considering a cost responsibility
surcharge applicable to former IOU customers who depart to take
service from a new municipal utility. A proposed decision and
two alternate decisions are on the agenda for the CPUC's July 10
meeting.
COMMENTS
1.Conditions and limitations on direct access conflict with
existing law. By repealing AB 1X's requirement that direct
access be suspended, the first thing this bill does is
functionally reinstate Sections 365 and 366 of the Public
Utilities Code, added by AB 1890, which require the CPUC to
authorize and facilitate direct access for all customers,
without regard to size, recovery of DWR costs, or any other
conditions in this bill. It's not clear what effect the rest
of the bill would then have on direct access. If the
additional conditions and limitations contained in the bill
are to apply to future direct access, the author and the
committee may wish to consider placing them instead directly
in Sections 365 and 366.
2.What does "no cost shifting" mean? This bill incorporates and
modifies cost recovery provisions enacted in AB 117 last year,
which were intended to prevent cost shifting. It also
essentially endorses the CPUC's existing cost recovery
decisions (specifically providing that no new proceedings are
required to reinstate direct access). However, the CPUC
decision referenced above requires bundled customers to bear
enormous cost obligations which are attributable to direct
access customers - in effect requiring bundled business
customers to make a loan to their direct access competitors
without any assurance of repayment - in order to maintain the
viability of existing direct access contracts. This bill can
be read to apply the same cost recovery standard, including
the 2.7 cap, to future direct access.
Given the several hundred million dollar under-collection
caused by the CPUC's delay in establishing the CRS, and the
additional cost shifting caused by the 2.7 cent cap, the
author and the committee may wish to consider prohibiting the
application of a CRS cap to future direct access transactions
and making reinstatement of direct access contingent on
repayment of the under-collection attributable to existing
direct access customers.
3.Municipal departing load. As noted above, an order adopting a
cost responsibility surcharge for municipal departing load is
pending before the CPUC. The CPUC's decision will be governed
in part by provisions of AB 1X and existing legislative intent
that all customers taking service from an IOU after the
enactment of AB 1X bear a fair share of specified DWR costs
and that any cost shifting between customers be prevented.
It's unclear what is added by the provisions of this bill
expressing intent to enact subsequent legislation to conform
to a CPUC decision which has not yet been issued. The author
and the committee may wish to consider whether the CPUC needs
additional authority or guidance with respect to cost recovery
from municipal departing load and, if so, enact operative
provisions to address any deficiency identified in existing
law, rather than expressing intent to conform to a pending
decision that has yet to be approved.
4.Related legislation . SB 888 (Dunn, Bowen and Burton) directs
the CPUC to develop, and submit to the Legislature for
enactment as a statute, a detailed proposal for implementation
of a "core/non-core" model for retail electric service that
achieves specified objectives. SB 888 is pending in the
Assembly.
AB 428 (Richman) reinstates direct access under a
"core/non-core" model. AB 428 is pending in this committee.
ASSEMBLY VOTES
Assembly Floor (60-1)
Assembly Appropriations Committee (22-0)
Assembly Utilities and Commerce Committee
(11-1)
POSITIONS
Sponsor:
Author
Support:
California Manufacturers & Technology Association
Oppose:
California Coalition of Utility Employees
California Municipal Utilities Association
City of West Sacramento
Northern California Power Agency
Southern California Public Power Authority
Lawrence Lingbloom
AB 816 Analysis
Hearing Date: July 8, 2003