BILL ANALYSIS AB 1284 Page 1 Date of Hearing: May 14, 2003 ASSEMBLY COMMITTEE ON APPROPRIATIONS Darrell Steinberg, Chair AB 1284 (Leslie) - As Amended: May 8, 2003 Policy Committee: UtilitiesVote:12-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill limits the amount of the cost recovery surcharge imposed by the Public Utilities Commission (PUC) for specified direct access customers. Specifically, this bill: 1)Limits, until January 1, 2009, the surcharge to the total of (a) the charge imposed for recovery of the Department of Water Resources' (DWR) energy purchase costs and (b) a tail competition transition charge, but in no case allows the charge to exceed $0.01 per kilowatthour. 2)Applies the above to corporations who: a) Were in a direct access contract in effect before January 1, 2000 through at least February 1, 2001. b) Were involuntarily returned to an investor-owned utility (IOU) after February 1, 2001, when their direct access contract was terminated, but returned to direct access status with another provider within 90 days. c) Continuously participated in an interruptible or curtailable service program. d) For 1996 through 2000 had (1) average electricity costs exceeding 8 percent of sales, (2) an average net profit margin exceeding 2 percent, and (3) average electricity costs as a percentage of sales exceeding average net profit margin. e) Submits a declaration from a director or an officer AB 1284 Page 2 stating that without the limits provided in (1), the corporation faces certain and imminent closure. FISCAL EFFECT Absorbable special fund costs for the PUC to amend its recent decision regarding direct access cost responsibility surcharges. COMMENTS 1)Background . AB X1 1 (Keeley)-Chapter 4, Statutes of 2001, in part specified that, after the passage of a period of time as determined by the PUC, the right of retail end use customers to acquire electric service from providers other than the IOUs was to be suspended until DWR no longer would be procuring power on behalf of the IOUs under authority also granted in AB X1 1. The PUC subsequently permitted direct access customer contracts entered into on or before September 20, 2001, to remain in effect, but specified that bundled customers (those purchasing electricity from the IOUs) would not be adversely impacted by shifting of costs caused by customers migrating from bundled to direct access load. AB 117 (Migden)-Chapter 838, Statutes of 2002, directed the PUC to impose a "fair share" of cost responsibility on all customers who took utility service on or after February 1, 2001. In November 2002, a PUC decision addressed direct access cost responsibility surcharges or exit fees and related issues. These are the 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 payment of charges by direct access customers is currently subject to an overall cap of 2.7 cents/kWh. The charges are applicable to all direct access loads that took bundled service on or after February 1, 2001, but customers that remained on direct access both before and after February 1, 2001 are excluded from the charges. 2)Purpose . This bill is sponsored by Sierra Pine, which uses wood waste to manufacture particleboard and medium density fiberboard, and currently employs about 450 people in Placer, Sacramento, and Amador Counties. Sierra Pine has been a direct access customer since 1997, except for a 2-1/2-month period during the summer of 2001, when Enron, its electric service provider, involuntarily returned the company to AB 1284 Page 3 bundled utility service. By obtaining bundled utility service after February 1, 2001 and departing for direct access, Sierra Pine is now subject to the exit fees discussed above. Sierra Pine indicates that, given the high energy demand of its operations, it cannot remain in business under the burden of this additional charge, for which it is subject because of just 75-days of involuntary bundled service. As first heard by the policy committee, the bill-narrowly constructed towards Sierra Pine-fully exempted from the cost recovery surcharge any company whose sole source of raw fiber material is wood waste. Subsequent amendments, approved by the committee, instead provide more general criteria as described above in the summary, for a corporation to be eligible for a reduced surcharge. Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081