BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 1284 - Leslie Hearing Date:
July 8, 2003 A
As Amended: June 17, 2003 FISCAL/URGENCY
B
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DESCRIPTION
Existing law:
1.Authorizes retail competition (direct access) within the
service areas of the investor-owned utilities (IOUs) (AB 1890
(Brulte), Chapter 856, Statutes of 1996).
2.Requires the California Public Utilities Commission (CPUC) to
suspend the right of IOU customers to acquire direct access
service until the Department of Water Resources (DWR) no
longer supplies power to IOU customers (AB 1X (Keeley),
Chapter 4, Statutes of 2001). Pursuant to AB 1X, the CPUC has
suspended direct access as of September 20, 2001.
3.Declares the intent of the Legislature that all customers
taking service from an IOU after the enactment of AB 1X bear a
fair share of specified DWR costs and that any cost shifting
between customers be prevented (AB 117 (Migden), Chapter 838,
Statutes of 2002).
This bill:
1.Exempts a customer that meets specified conditions from at
least 1.7 cents of the 2.7 cent cost responsibility surcharge
(CRS) adopted by the CPUC pursuant to AB 1X and AB 117. The
bill is intended to apply only to its sponsor, Sierra Pine.
2.Declares the intent of the Legislature that bundled customer
indifference be achieved and that no costs be shifted as a
result of the bill.
3.Sunsets January 1, 2009.
4.Is an urgency measure.
BACKGROUND
As part of the restructuring of the electric industry, AB 1890
authorized direct access. To avoid the dysfunctional spot
market that financially decimated the IOUs and threatened
catastrophic rate increases, AB 1X established a structure to
permit DWR to buy needed electricity for IOU customers under
long-term contracts. To ensure the predictable revenue stream
necessary for long-term contracts, the issuance of
ratepayer-backed revenue bonds, and prevent cost-shifting from
direct access to bundled service customers, the CPUC was
directed to suspend direct access to prevent additional
migration of IOU customers. After a seven-month delay, the CPUC
suspended direct access on September 20, 2001.
Between January and June 2001, the vast majority of customers
previously served by direct access providers returned to IOU
service. Many of these customers were returned without their
knowledge or consent by their providers as the direct access
market collapsed.
However, between July 1, 2001 and September 20, 2001, thousands
of predominantly large industrial customers, who had taken
service from the state at below-market rates, departed for
direct access as market conditions improved. During the July 1
to September 20 period, direct access increased from
approximately 2% to approximately 13% of the total IOU load.
In a decision issued in November 2002 (D.02-11-022), the CPUC
determined direct access customers' obligation for payment of
DWR and IOU procurement costs, but capped the payment for these
costs at 2.7 cents per kilowatt hour. The CPUC majority
reasoned such a cap was necessary to maintain the viability of
existing direct access contracts.
The 2.7 cent charge won't pay back what direct access customers
owe for DWR power already delivered, or for DWR operating costs
in the next few years, so a revenue shortfall or
"under-collection" results. Since payment of DWR's costs (bond
payment and ongoing revenue requirement) can't be postponed, the
CPUC decision shifts the obligation to pay any shortfall from
direct access customers to each IOU's bundled customers, be they
residential, agricultural, commercial or industrial.
According to the CPUC, the direct access shortfall as of January
1, 2003 was $609 million. The shortfall is expected to continue
to grow for several years. Over time, as DWR costs decline,
direct access customers' payments are projected to catch up and
pay off this under-collection. In the meantime, IOU customer
rates will have to maintained at a level high enough to support
this "forced loan" to direct access customers.
Because it was returned to PG&E bundled service by its
then-provider, Enron, and later returned to a different direct
access provider, Sierra Pine has been subject to the 2.7 cent
CRS under the CPUC decision. PG&E has collected over $1 million
in CRS charges from Sierra Pine since January 2001. Although
most of the CRS is intended to cover DWR's costs, PG&E has not
yet remitted any of its CRS revenues to DWR. This bill would
relieve Sierra Pine of an estimated $2 million annually in
electricity costs.
COMMENTS
1.Is a CRS waiver necessary? The effect of this bill is to
provide a 1.7 cent rate discount as a business retention tool.
The author and sponsor intend it to be financed by fellow
direct access customers, rather than bundled customers, who
are already financing overall direct access customer
obligations due to the 2.7 cent CRS cap.
The author and the committee may wish to consider whether the
1.7 cents must be waived, or if payment can deferred instead,
and whether the CPUC should be authorized to determine the
amount of discount necessary to retain Sierra Pine and then
authorize deferral of a portion of CRS collection.
The author and the committee may also wish to consider other
alternatives to retain Sierra Pine besides a rate discount
financed entirely by other customers, which sets a
questionable precedent and invites other customers suffering
from high electricity rates to seek similar treatment. One
alternative would be a low-interest loan to cover CRS
payments, subject to a matching requirement by Sierra Pine's
direct access provider.
2.Another casualty of Enron. Sierra Pine's liability for CRS
was created by its unauthorized return to bundled service by
Enron during the energy crisis. Like many other direct access
customers in California, Sierra Pine has cause for legal
action to recover damages from Enron for breech of contract.
This bill illustrates an inherent problem with direct access.
Direct access providers have no enforceable obligation to
serve their customers beyond whatever contract terms are
negotiated, which provided little protection to the direct
access customers dumped in 2001. As the default provider to
dumped customers, it's the IOU and its bundled customers that
take the risk for non-performance by the direct access
provider. As the Sierra Pine situation shows, recovering the
cost of providing default service may be difficult.
The author and the committee may wish to consider including
provisions in this bill to discourage direct access providers
from dumping their customers, such as requiring providers to
pay any resulting default service costs, and requiring
providers to post collateral as a condition of CPUC
registration to cover any such costs.
ASSEMBLY VOTES
Assembly Floor (74-0)
Assembly Appropriations Committee (24-0)
Assembly Utilities and Commerce Committee
(12-0)
POSITIONS
Sponsor:
SierraPine Composite Solutions
Support:
Acoustic Authority
Agra Trading
American Laminates
Auburn Hardwoods
Capitol Plywood, Inc.
Support (continued):
Coastal Wood Products
Crystal Art Gallery
Do+Able Products, Inc.
Frost Hardwood Lumber Company
Ganahl Lumber
G.L. Veneer Co., Inc.
Haley Bros., Inc.
Joe Kunz Company
Kelleher Corporation
Lifetime Doors, Inc.
Masonite International Corporation
Pacific MDF Products Inc.
Patrick Industries, Inc.
Saint Gobain Abrasives/Norton Company
Somerville Plywood Corp.
SUBA MFG., Inc.
Weyerhaeuser Company
2 individuals
Oppose:
Department of Finance
Southern California Edison
Lawrence Lingbloom
AB 1284 Analysis
Hearing Date: July 8, 2003