BILL ANALYSIS                                                                                                                                                                                                    




                                                                  AB 1284
                                                                  Page A
          Date of Hearing:  April 21, 2003

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                                 Sarah Reyes, Chair
                    AB 1284 (Leslie) - As Amended:  April 10, 2003
           
          SUBJECT  :  Direct transactions: cost responsibility surcharges.

           SUMMARY  :  Exempts fiber and particleboard manufacturers from  
          direct access exit fees.  Specifically,  this bill  :  

          1)Provides that any entity whose sole source of raw fiber  
            material is recycled or reclaimed wood waste used in a  
            manufacturing process that does not permit flexible energy  
            consumption shall be exempt from cost recovery surcharges as  
            established under any decision of the California Public  
            Utilities Commission (PUC). 

          2)Sunsets on January 1, 2009.

           EXISTING LAW  :

          1)Suspends the right of retail end use customers to acquire  
            electricity from providers other than the investor-owned  
            electric utilities (IOUs) until the Department of Water  
            Resources (DWR) no longer supplies power that it purchased on  
            behalf of IOUs during the energy crisis of 2000-2001.

          2)Provides that various classes of customers who have purchased  
            electricity from a supplier other than an IOU are responsible  
            for a fair share of both the electricity purchase costs  
            incurred by DWR, and the purchase contract costs of the IOUs  
            from which they are departing.

           FISCAL EFFECT  :  Unknown.

           COMMENTS  :   

          In early 2001, the Legislature passed AB X1 1 (Keeley), Chapter  
          4, Statutes of 2001.  Among other things, AB X1 1 specified  
          that, after the passage of a period of time as determined by  
          PUC, the right of retail end use customers to acquire electric  
          service from providers other than the IOUs shall be suspended  
          until DWR no longer supplies power under the authority granted  
          in AB X1 1 for DWR to buy power on behalf of IOUs.  









                                                                  AB 1284
                                                                  Page B

          Subsequently, PUC permitted direct access customer contracts  
          entered into on or before September 20, 2001, to remain in  
          effect, but specified that bundled customers<1> shall not be  
          adversely impacted by shifting of costs caused by customers  
          migrating from bundled to direct access load.  

          Last year, AB 117 (Migden), Chapter 838, Statutes of 2002,  
          clarified the Legislature's intent concerning recovery of  
          DWR-related costs from retail end-use customers, stating that  
          those who have

               "[p]urchased 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."<2>

          Thus, AB 117 (Migden) directs PUC to impose a "fair share" of  
          cost responsibility on all customers who took utility service on  
          or after February 1, 2001.  The amount of the fair share is left  
          to PUC to determine.

          In November 2002, a PUC decision<3> addressed direct access cost  
          responsibility surcharges or exit fees and related issues.   
          These costs are costs incurred by DWR on behalf of customers in  
          the service territories of the three major utilities, and costs  
          incurred by each of the utilities through their own resources  
          and contracts.

          The charges are applicable to all direct access load that took  
          bundled service on or after February 1, 2001.  The payment of  
          charges by direct access customers is currently subject to an  
          ---------------------------
          <1> Direct access customers purchase electricity from an  
          independent electric service provider (ESP), and receive only  
          distribution and transmission service from the IOU utility.   
          "Bundled" customers, however, rely on IOU for all these  
          services.  Distribution and transmission charges are "bundled"  
          with a charge for the procurement of energy supplies.
          <2> Public Utilities Code  366.2 (d)(1).

          <3> D. 02-11-022.








                                                                  AB 1284
                                                                  Page C
          overall cap of 2.7 cents/kWh.  

          Continuous direct access customers that remained on direct  
          access both before and after February 1, 2001 are excluded from  
          the charges. 

           Sierra Pine
           
          Sierra Pine is the sponsor of this bill, and has for the most  
          part been a continuous direct access customer, except for a 2-3  
          month period during the summer of 2001, when Enron, its electric  
          service provider, involuntarily returned it to bundled utility  
          service.  

          By taking bundled utility service after February 1, 2001 and  
          departing for direct access, Sierra Pine now pays exit fees  
          pursuant to PUC Decision 02-11-022.   

          This bill would exempt Sierra Pine from exit fees imposed by the  
          PUC at the direction of the Legislature.

           Consistent Legislative Policy on Cost Shifting  

          In enacting AB 117 (Migden), the Legislature clearly stated its  
          preference that all parties pay a fair share of DWR's  
          electricity purchase costs, and that there be no cost-shifting  
          between customers. 

          This bill would enact a different policy, allowing an exception  
          to the rule or preference against cost shifting.  It would also  
          run counter to recent PUC decisions establishing exit fees,  
          based on Legislative direction to avoid cost shifting.  

          Another issue raised by this bill, but not decided, is what  
          policy should be in place to govern those who return from direct  
          access to bundled electric service, whether voluntarily or not.   
          In order to encourage future stability in the markets, and in  
          the creditworthiness of utilities, the Legislature or the PUC  
          should establish a predictable policy governing the goings and  
          comings from direct access.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           









                                                                  AB 1284
                                                                  Page D
          Sierra Pine Ltd. (sponsor)

           Opposition 
           
          None on file.
           

          Analysis Prepared by  :    Paul Donahue / U. & C. / (916) 319-2083