BILL ANALYSIS
AB 2006
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Date of Hearing: May 12, 2004
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Judy Chu, Chair
AB 2006 (Nunez) - As Amended: April 12, 2004
Policy Committee: UtilitiesVote:9-3
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill sets up requirements for: a) a core/noncore model of
electrical service; b) cost recovery of an investor-owned
utility's (IOU's) direct investments and contracting costs;
utilities filing an integrated resource investment plan; c)
generation resource selection; d) resource adequacy for most
load serving entities; and e) transmission investment.
Specifically, this bill:
1)Requires the Public Utilities Commission (PUC) to approve and
maintain just and reasonable rates sufficient to ensure that
IOUs fully recover the cost of investments found reasonable by
the PUC. This cost recovery assurance applies to direct
investment made by IOUs and the IOUs' full costs of
contracting for generation resources.
2)Requires IOUs to file, and the PUC to review and approve, long
term resource plans, consistent with existing law
requirements, to include demand and supply forecasts for 5,
10, and 15 years and to ensure adequate resources to serve IOU
customers.
3)Requires IOUs to recommend to the PUC approval of generation
resources necessary to meet diversified resource adequacy
requirements consistent with the following: (a) non-utility
generation selected through a competitive solicitation; (b)
bilateral contracts, determined to be reasonably priced
relative to a PUC-developed market based benchmark; (c)
utility owned generation as filed by an IOU consistent with
its approved procurement plan and determined by the PUC to be
reasonably priced relative to the PUC benchmark.
AB 2006
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4)Requires the IOUs to invest in transmission infrastructure
based on need determined by the Independent System Operator
(ISO).
5)Requires the PUC, by December 31, 2005, to adopt rules and
establish a core/non core service model for electrical
service, with non-core customers defined as those with maximum
peak demand exceeding 500 kilowatt.
6)Allows non-core customers to enter into direct transactions
with for non-IOU electric service providers (ESPs), and
requires the PUC to prevent any cost shifting to IOU customers
as a result of direct access (DA) electrical purchases.
7)Requires ESPs with DA contracts to meet PUC-approved resource
adequacy requirements.
8)Allows a non-core customer utilizing DA to receive default
electric service from an IOU by paying the higher of the
short-term spot market rate or the otherwise applicable tariff
rate.
9)Requires non-core customers electing to remain with the IOU to
make five-year rolling commitments for IOU service.
10)Subjects all non-IOU electric service providers, including
community choice aggregators, and except local publicly owned
utilities, to the same requirements for resource adequacy and
diversity as apply to the IOUs.
11)Requires the PUC, in consultation with the ISO, to establish
requirements to ensure adequate generation capacity to
reliably serve all electrical customers per (10), above, and
requires the ISO to enforce these requirements in a
non-discriminatory manner.
FISCAL EFFECT
The PUC would incur one-time special fund costs of about
$180,000 to establish the core/non-core structure and ongoing
costs of about $100,000 to review IOU long-term resource plans
and to make determinations to ensure full rate recovery for IOU
investments and contracts.
COMMENTS
AB 2006
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1)Purpose . Power plant projects with more than 6,500 MW of
generating capacity have been permitted by the state but not
constructed because the credit worthiness of independent power
producers is weak. Most of the independent generators are
seeking to enter into long term contracts with an IOU because
the financial markets will only provide capital to projects
that have a clearly defined revenue stream over a long period
of time (at least 10 years).
According to the author, "AB 2006 seeks to establish a solid
framework for the state's power industry, which should help
encourage investment in new power plants. Such investment has
dried up in recent years, in part due to regulatory
uncertainty. We must replace the current uncertainty in the
regulatory environment in California with a clear energy
policy to make sure that we secure power when we need it at
prices we can afford." (The analysis of this bill by the
Assembly Utilities and Commerce Committee contains a thorough
discussion on electrical restructuring in California, the
energy crisis of 2001 and legislative and PUC actions since
the crisis.)
2)Opposition . The Independent Energy Producers (IEP) believe
that the bill, from a procurement/cost recovery perspective,
provides preferential treatment to IOU generation. The Utility
Reform Network (TURN) argues that implementing a core/non-core
model would shift costs to small ratepayers, would be
unworkable for system planning for uncertain future load
requirements, and would not spur construction of new
generating capacity. The California Manufacturing and
Technology Association echoes the IEP's concerns about the
bill not adequately providing for competitive market for new
generation capacity.
3)Related Legislation . AB 428 (Richman), pending in the Senate
Energy, Utilities and Commerce Committee, also establishes a
core/non-core customer model.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081