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