BILL ANALYSIS
AB 2006
Page 1
ASSEMBLY THIRD READING
AB 2006 (Nu?ez)
As Amended May 24, 2004
Majority vote
UTILITIES AND COMMERCE 9-3 APPROPRIATIONS 16-4
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|Ayes:|Reyes, Bogh, Calderon, |Ayes:|Chu, berg, Calderon, |
| |Diaz, | |Corbett, Correa, |
| |Jerome Horton, Levine, | |Firebaugh, Goldberg, |
| |Ridley-Thomas, | |Leno, Nation, Negrete |
| |Strickland, Wesson | |McLeod, Oropeza, Pavley, |
| | | |Ridley-Thomas, Wesson, |
| | | |Wiggins, Yee |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Campbell, Canciamilla, La |Nays:|Runner, Bates, Haynes, |
| |Malfa | |Keene |
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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 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' reasonable
opportunity to fully recover reasonable costs of contracting
for generation resources as determined by the CPUC.
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
AB 2006
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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; (c)
utility owned 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, excluding local publicly owned
utilities, customer generation serving specific customer load,
and over the fence transactions 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.
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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 :
Establishing a durable energy policy: This bill seeks to
establish a durable energy policy for California by lowering the
regulatory risks for IOUs to recover reasonably incurred costs
regardless of whether the IOU opts to go with procurement
contracts or utility constructed generation. More importantly
this bill establishes the market structure whereby the IOUs can
plan accordingly to meet their electricity needs through a
core/noncore structure. The core/noncore market structure is
distinguished by customers over 500 kWh being able to choose
their electricity service provider but penalizing them if they
default back to the IOU by having them pay the higher of tariff
or spot market prices. This bill includes numerous provisions
to safeguard residential and commercial customers in the core
portfolio from any costs shifting as a result of the
anticipation of large customers leaving to the noncore.
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
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2001 and legislative and CPUC actions since the crisis,
including more detailed comments regarding the impact of this
bill.)
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.
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: 0005899