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.
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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
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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.
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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.
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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