BILL ANALYSIS                                                                                                                                                                                                    




                                                                  AB 1284
                                                                  Page A
          Date of Hearing:  April 28, 2003

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                                 Sarah Reyes, Chair
                    AB 1284 (Leslie) - As Amended:  April 24, 2003

           SUBJECT  :  Direct transactions:  cost responsibility surcharges.

           SUMMARY :  Exempts specified business entities from some of the  
          exit fees that have been imposed by the California Public  
          Utilities Commission (PUC) on direct access customers.   
          Specifically,  this bill  :  

          1)Exempts a business entity from liability for the full cost  
            responsibility surcharge or exit fee recently imposed by PUC  
            on direct access customers if the business facility or plant:

             a)   Signed a direct access contract with an electrical  
               service provider (ESP) that was effective prior to February  
               1, 2001;

             b)   Had its direct access contract involuntarily terminated  
               by the ESP after February 1, 2001, but returned to direct  
               access within 90 days thereafter;

             c)   Had an average net margin as a percent of sales for the  
               five years beginning January 1, 1996 through December 31,  
               2000 was greater than 2 percent;

             d)   Had average electrical energy costs that exceeded 8  
               percent as a percentage of sales for that same 5-year  
               period;

             e)   Participated continuously in an interruptible or  
               curtailable service program;

             f)   Had average electrical costs as a percentage of sales  
               that exceeded the average net margin as a percentage of  
               sales for that 5-year period; and

             g)   Submits a signed declaration from an officer, director  
               or company owner stating that, without the specified relief  
               from cost recovery surcharges, the applicable plant will  
               face certain and imminent closure.










                                                                  AB 1284
                                                                  Page B
          2)Provides that, in lieu of paying the full cost recovery  
            surcharge as specified in PUC decisions, the business entity  
            shall instead pay charges imposed to enable Department of  
            Water Resources (DWR) to recover electricity bond costs fees,  
            in an amount not to exceed one (1) cent per kilowatt-hour  
            (kWh) on the actual electricity consumed. 

          3)Sunsets the provisions of this bill on January 1, 2009

          4)Declares the intent of the Legislature that no costs be  
            shifted between customer classes as a result of the provisions  
            of this bill.




           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 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.  

          Subsequently, PUC permitted direct access customer contracts  
          entered into on or before September 20, 2001, to remain in  










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

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

           Involuntary shift from direct access electric service to bundled  
          service.
           
          Enron, Inc. was a major ESP provider for California entities.   
          In 2001, it subjected its direct access customers to  
          unauthorized and involuntary switching to bundled service  
          without advance notice.  Many remained on utility bundled  
          service only briefly.  In recent PUC proceedings to determine  
          the amount of exit fee responsibility, these entities  
          unsuccessfully argued that they should be treated as if they  
          were continuously on direct access service, which would thereby  
          exempt them from any exit fee responsibility.  

          To the extent that the ESP initiated involuntary switching,  
          these parties argued that charging a direct access exit fee  
          unfairly penalized them because they entered into contracts with  
          ESPs as early as 1998, fully performed pursuant to the terms of  
          their direct access contracts, including payment of their bills  
          rendered by the ESPs pursuant to consolidated billing; and  
          relied on their ESPs and not the utilities to meet their full  
          power requirements.

          In refusing to adopt this proposal, PUC noted that a direct  
          access customer have cause for legal action against the ESP and  
          could seek a judgment for damages in the appropriate court  
          jurisdiction.  In the case of Enron, however, the likelihood of  
          recovery against the bankrupt entity is small. 

          Nevertheless, PUC took the position that bundled utility  
          customers should not be required to bear the burden of wrongful  
          actions of ESPs, and PUC imposed responsibility for the payment  
          of exit fees without any exemptions based upon whether or not  
          the direct access customer had granted advance permission to the  
          ESP to execute the switch.  

          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.  The policy question presented to the  
          Committee by  this bill  is whether and under what circumstances  
          should the Legislature depart from these uniform cost-shifting  
          principles.  









                                                                  AB 1284
                                                                  Page E

          In this bill, businesses that were viable concerns for the five  
          (5) years leading up to the energy crisis, but which nonetheless  
          had high energy costs, are eligible for a reduction in exit fee  
          responsibility if they were involuntarily returned to bundled  
          service for a short time and will essentially go out of business  
          without the relief set forth in this bill. 





           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Sierra Pine Ltd. (sponsor)
          Lumber and Sawmill Workers Union Local 2927
          Source International Moulding Division
          Crystal Art Gallery
          G.L. Veneer Co., Inc.
          Somerville Plywood Corp.
          Yuba River Moulding & Millwork, Inc.

           Opposition 
           
          Southern California Edison
           

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