BILL ANALYSIS
AB 2006
Page 1
ASSEMBLY THIRD READING
AB 2006 (Nunez)
As Amended April 12, 2004
Majority vote
UTILITIES AND COMMERCE 9-3 APPROPRIATIONS 16-4
-------------------------------------------------------------------
|Ayes:|Reyes, Bogh, Calderon, |Ayes:|Chu, Berg, Calderon, |
| |Diaz, | |Corbett, Correa, Firebaugh, |
| |Jerome Horton, Levine, | |Goldberg, Leno, Nation, |
| |Ridley-Thomas, | |Negrete McLeod, Oropeza, |
| |Strickland, Wesson | |Pavley, Ridley-Thomas, |
| | | |Wesson, Wiggins, Yee |
| | | | |
|-----+--------------------------+-----+----------------------------|
|Nays:|Campbell, Canciamilla, La |Nays:|Runner, Bates, Haynes, |
| |Malfa | |Keene |
-------------------------------------------------------------------
SUMMARY : 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 California Public Utilities Commission (CPUC) to
approve and maintain just and reasonable rates sufficient to
ensure that IOUs fully recover the cost of investments found
reasonable by CPUC. This cost recovery assurance applies to
direct investment made by IOUs and IOUs' full costs of
contracting for generation resources.
2)Requires IOUs to file, and CPUC 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 CPUC 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 CPUC-developed market based benchmark; and, c) utility owned
AB 2006
Page 2
generation as filed by an IOU consistent with its approved
procurement plan and determined by CPUC to be reasonably priced
relative to CPUC benchmark.
4)Requires IOUs to invest in transmission infrastructure based on
need determined by the Independent System Operator (ISO).
5)Requires CPUC, 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 CPUC
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 CPUC-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 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 IOUs.
11)Requires CPUC, in consultation with 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 : CPUC 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
Page 3
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."
(See the policy analysis of this bill by the Assembly Utilities
and Commerce Committee, which contains a thorough discussion on
electrical restructuring in California, the energy crisis of 2001
and legislative and CPUC actions since the crisis, including more
detailed comments regarding the impact of this bill.)
2)Opposition: The Independent Energy Producers (IEP) believe that
this 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 IEP's concerns
about this 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 : Daniel Kim / U. & C. / (916) 319-2083 FN:
0005678