BILL ANALYSIS                                                                                                                                                                                                              1
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                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                               DEBRA BOWEN, CHAIRWOMAN
          

          AB 1169 -  Bermudez                               Hearing Date:  
          July 8, 2003               A
          As Amended:         July 1, 2003                  Non-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) and  
            permits aggregation of direct access customers (AB 1890  
            (Brulte), Chapter 856, Statutes of 1996).

          2.Requires the California Public Utilities Commission (CPUC) to  
            suspend the right of retail customers of IOUs to acquire  
            electric power service from non-IOU providers 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.Establishes a general exemption from the direct access  
            suspension for community aggregation undertaken by cities and  
            counties serving customers within their jurisdictions, subject  
            to provisions to ensure cost recovery from customers departing  
            from IOU service (AB 117 (Migden), Chapter 838, Statutes of  
            2002).

          4.Establishes a limited exemption from the direct access  
            suspension permitting two cities (Cerritos and San Marcos) to  
            provide direct access service to deliver their share of the  
            Magnolia power plant project output to customers within their  
            jurisdictions, subject to provisions to ensure cost recovery  
            from customers departing from IOU service (AB 80 (Havice),  











            Chapter 837, Statutes of 2002).

           This bill  modifies the statute enacted by AB 80 to limit its  
          application to one city (Cerritos), to permit Cerritos to offer  
          direct access service to specified school facilities  outside  its  
          jurisdiction, and to provide that the statute doesn't require  
          Cerritos to rely solely on output of the Magnolia power plant.

                                      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.

          Last year, two bills (AB 80 and AB 117) were enacted to  
          authorize conditional exemptions from the direct access  
          suspension for community aggregation.  Community aggregation is  
          a form of direct access where, for example, a city may act as a  
          purchasing agent on behalf of its residents.  AB 80 was enacted  
          to facilitate the sale of the output of a planned power plant  
          (Magnolia) to the residents of two cities which had an existing  
          interest in the project (Cerritos and San Marcos, which has  
          since dropped out of the project).  The operative provisions of  
          AB 80 were accompanied by the following intent section:

            SECTION 1.  (a) It is the intent of the Legislature, in  
            enacting the act adding this section, to recognize  
            contributions made in response to California's need for the  
            expedited investment in and development of new  
            environmentally superior electrical generation projects.
               (b) It is further the intent of the Legislature to avoid  
            the potential delay in adding new electrical generating  
            capacity that might be caused if certain project  
            participants are not allowed to utilize community  
            aggregation to deliver their share of the project output to  










            customers within their jurisdiction.

          AB 117 revised and supplemented the procedures governing  
          community aggregation to, among other things, allow cities to  
          aggregate on an "opt-out" basis, rather than an "opt-in" basis.   
          In both bills, service was limited to customers within the  
          aggregating city's jurisdiction.  

          Implementation of both bills is also contingent on CPUC adoption  
          of a comprehensive mechanism to recover costs incurred by IOUs  
          and DWR from each customer taking IOU service on or after  
          February 1, 2001, including customers departing for community  
          aggregation, direct access, customer generation, or new  
          municipal utility service.  The CPUC has yet to adopt a cost  
          recovery mechanism for community aggregation customers, or  
          otherwise initiate implementation of the community aggregation  
          bills, and its cost recovery mechanisms for other customers may  
          not satisfy the statutory conditions in AB 80 or AB 117.  In  
          addition, Cerritos' authority under AB 80 to serve as a  
          community aggregator depends on the completion of the Magnolia  
          power plant, which is scheduled for mid-2005.

                                       COMMENTS
           
           1.Should "community aggregation" extend beyond the community's  
            boundaries?   Last year's community aggregation bills  
            intentionally limited service to customers within the  
            jurisdiction of the community to limit their scope and ensure  
            accountability of the aggregator to its customers/voters.  To  
            the extent it authorizes Cerritos to serve ABC school district  
            accounts outside Cerritos, this bill is inconsistent with last  
            year's agreements.   The author and the committee may wish to  
            consider  whether the provisions authorizing Cerritos to serve  
            "all electric service accounts of the ABC Unified School  
            District" should be deleted.

           2.What is Cerritos' intent?   The provision of this bill  
            providing that Cerritos isn't required to rely solely on  
            output of the Magnolia power plant in serving its customers is  
            characterized as a clarification of AB 80, but it raises  
            questions about the purpose of the special statute authorizing  
            an exemption from the direct access suspension for Cerritos.

            While it would be impractical to rely solely on a single  










            resource to provide reliable electric service, the language  
            proposed by this bill can be read to nullify the amendment to  
            AB 80 adopted in this committee making construction of  
            Magnolia, and delivery of the power to the cities, a condition  
            of the cities' exemption from the direct access suspension.*

            If the Legislature's intent in enacting AB 80 was to provide a  
            limited exemption to the direct access suspension to enable  
            the completion of the Magnolia power plant, as is suggested by  
            AB 80's intent language and the provision referenced above,  
             the author and the committee may wish to consider  clarifying  
            that Cerritos must deliver its share of Magnolia's output to  
            customers within its jurisdiction before it buys any needed  
            power from other sources.

            * Excerpt from Senate Energy, Utilities and Communications  
            Committee Analysis of AB 80 (June 11, 2002):

               The bill contains no requirement that the cities use  
               power from Magnolia as a condition of their exemption  
               from the direct access suspension, only that they are  
               partners in the power plant's development, a condition  
               they have already met.  If enacted, the bill would allow  
               the cities to offer direct access whether or not they  
               deliver power from Magnolia, before Magnolia is  
               constructed, or even if Magnolia never is constructed.   
               If the possibility of furthering the construction of  
               Magnolia is viewed as a compelling reason for the bill,  
                the author and the committee may wish to consider  making  
               construction of Magnolia, and delivery of the power to  
               the residents of Cerritos and San Marcos, a condition of  
               the cities' exemption from the direct access suspension.

           3.Should AB 80 be revisited in light of enactment of AB 117?   AB  
            80 was passed by this committee prior to AB 117, recognizing  
            that AB 117's eventual enactment was not assured.  Now that AB  
            117 has been enacted to provide a general framework for  
            community aggregation by cities,  the author and the committee  
            may wish to consider  whether a separate statute with different  
            standards, applicable only to Cerritos, is warranted.

            If a separate statute for Cerritos is warranted, certain  
            provisions of existing law which would have been applicable to  
            Cerritos when AB 80 passed this committee, but were later  










            amended or replaced by new provisions in AB 117, should be  
            restored to apply to Cerritos.  For example, when AB 80 passed  
            this committee, Section 366 of the Public Utilities Code  
            required public agencies offering service to any residential  
            customers to offer service to all residential customers within  
            its jurisdiction. This universal service requirement was  
            repealed by AB 117, which replaced it with a universal service  
            requirement applicable to the AB 117 process.   The author and  
            the committee may wish to consider  applying a similar  
            universal service requirement to Cerritos in this bill, as  
            follows:

               If a public agency seeks to serve as a community  
               aggregator, it shall offer the opportunity to purchase  
               electricity to all residential customers within its  
               jurisdiction.

                                    ASSEMBLY VOTES
           
          Assembly Floor                     (77-0)
          Assembly Utilities and Commerce Committee                       
          (11-0)

                                       POSITIONS
           
           Sponsor:
           
          City of Cerritos

           Support:
           
          None on file

           Oppose:
           
          None on file

          































          Lawrence Lingbloom 
          AB 1169 Analysis
          Hearing Date:  July 8, 2003