BILL ANALYSIS
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THIRD READING
Bill No: AB 1284
Author: Leslie (R)
Amended: 7/17/03 in Senate
Vote: 27 - Urgency
SENATE ENERGY, U. & C. COMMITTEE : 7-0, 7/8/03
AYES: Bowen, Alarcon, Battin, Dunn, McClintock, Murray,
Vasconcellos
ABSENT/NO VOTE RECORDED: Morrow, Sher
SENATE APPROPRIATIONS COMMITTEE : Not available
ASSEMBLY FLOOR : 74-0, 5/22/03 - See last page for vote
SUBJECT : Direct transactions: cost responsibility
surcharges
SOURCE : Sierra Pine Composite Solutions
DIGEST : This bill authorizes the State Public Utilities
Commission to defer or waive a portion of the cost
responsibility surcharge for qualifying direct transaction
customers, as specified.
ANALYSIS :
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].
CONTINUED
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2. Requires the State Public Utilities Commission (PUC) to
suspend the right of IOU customers to acquire direct
access service until the State Department of Water
Resources (DWR) no longer supplies power to IOU
customers [AB 1X (Keeley), Chapter 4, Statutes of 2001].
3. Pursuant to AB 1X, the CPUC has suspended direct access
as of 9/20/01.
4. 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. Authorizes the PUC, if it finds it is in the public
interest and there is no feasible alternative, to defer
or waive the collection of a portion of the cost
responsibility surcharge otherwise applicable to a
qualifying direct transaction customer, as defined, to
the extent necessary to mitigate certain conditions
described in an application and declaration submitted by
the customer to the PUC.
2. Requires the PUC to issue a decision on such an
application on or before 9/4/03 (the PUC may issue its
decision in less than 30 days following filing and
service of the proposed decision).
3. Is intended to apply only to its sponsor, Sierra Pine.
4. Sunsets 1/1/09.
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
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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 PUC was directed to suspend direct
access to prevent additional migration of IOU customers.
After a seven-month delay, the PUC suspended direct access
on 9/20/01.
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 7/1/01 and 9/20/01, 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 two percent to approximately 13 percent of
the total IOU load.
In a decision issued in November 2002, the PUC 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 PUC majority
reasoned such a cap was necessary to maintain the viability
of existing direct access contracts.
The 2.7 cent charge will not 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)
cannot be postponed, the PUC 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 PUC, the direct access shortfall, as of
1/1/03, was $609 million. The shortfall is expected to
continue to grow for several years. Over time, as DWR
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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 cost responsibility surcharge (CRS) under the PUC
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
relieves Sierra Pine of an estimated $2 million annually
in electricity costs.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 7/15/03)
Sierra Pine Composite Solutions (source)
Acoustic Authority
Agra Trading
American Laminates
Auburn Hardwoods
Capitol Plywood, Inc.
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.
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Weyerhaeuser Company
2 individuals
OPPOSITION : (Verified 7/15/03)
State Department of Finance
Southern California Edison
ASSEMBLY FLOOR :
AYES: Aghazarian, Bates, Benoit, Berg, Bermudez, Bogh,
Calderon, Campbell, Canciamilla, Chan, Chavez, Chu,
Cogdill, Corbett, Correa, Cox, Diaz, Dutra, Dutton,
Dymally, Firebaugh, Frommer, Garcia, Hancock, Harman,
Haynes, Jerome Horton, Shirley Horton, Houston, Jackson,
Keene, Kehoe, Koretz, La Malfa, La Suer, Laird, Leno,
Leslie, Levine, Lieber, Liu, Longville, Lowenthal,
Maddox, Maldonado, Matthews, Maze, McCarthy, Montanez,
Mountjoy, Mullin, Nakanishi, Nakano, Nation, Negrete
McLeod, Oropeza, Pacheco, Parra, Pavley, Plescia, Reyes,
Richman, Ridley-Thomas, Runner, Salinas, Samuelian,
Spitzer, Steinberg, Strickland, Vargas, Wiggins, Wolk,
Wyland, Yee
NC:mel 7/16/03 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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