BILL ANALYSIS 1 1 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 1 1 6 9 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