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  








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               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  








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            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