BILL ANALYSIS                                                                                                                                                                                                    
                                                                  AB 2499
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          Date of Hearing:  April 19, 2004
                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                                 Sarah Reyes, Chair
                    AB 2499 (Horton) - As Amended:  April 12, 2004
           
          SUBJECT  :  Energy Commission:  publicly owned electric utilities:  
           long-term resource plans.
           SUMMARY  :  Requires publicly owned electric utilities (POEU)  
          established after January 1, 2001, to meet the same resource  
          adequacy requirements of investor owned utilities (IOUs) before  
          they can provide electric services.  Specifically,  this bill  :  
          1)States that a POEU established after January 1, 2001, shall  
            meet the same resource adequacy requirements applicable to an  
            electric corporation. 
          2)Requires that a POEU established after January 1, 2001, shall  
            obtain approval of a long term resource plan from the  
            California Energy Commission (CEC) before providing service to  
            any additional customers after July 1, 2005.
          3)Requires CEC to adopt requirements that a POEU must meet in  
            its long-term resource plan.
          4)Requires a POEU established after January 1, 2001, to file  
            updates to its resource plans at least every three years. 
          5)Requires a POEU established after January 1, 2001, to make  
            findings that CEC has approved POEU resource plan and the  
            public interest and necessity requires that POEU to provide  
            retail services. 
          6)States that in order to prevent the subsidization of public  
            utility customers by other investor owned utility customers,  
            the California Public Utilities Commission (CPUC) shall impose  
            a non-bypassable charge on customer of an IOU who take  
            electric services from POEU.
           EXISTING LAW  :
          1)Requires each electric corporation to prepare and file a  
            procurement plan with the CPUC and requires that an approved  
            plan enable the utility to fulfill its obligation to serve its  
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            customers at just and reasonable rates.
          2)Requires IOUs to increase its total amount of eligible  
            renewable resources by at least one percent per year, until  
            20% of its retail sales are procured from renewables.  
          3)Requires each governing body of a POEU to implement and  
            enforce an renewable portfolio standard (RPS) that takes into  
            consideration the impact on rates, reliability, the goal of  
            environmental improvement, and the impact on financial  
            resources.  The governing board will annually report to its  
            customers concerning the RPS program.
           FISCAL EFFECT  :  Unknown.
           COMMENTS  :  In 2002, the Legislature passed AB 57 (Wright),  
          Chapter 835, Statutes of 2002, which established guidelines for  
          procurement of electricity by the utilities after January 1,  
          2003, and for CPUC to review the utilities' procurement plans.   
          CPUC issued a decision implementing AB 57 procurement process in  
          January.  Under the decision, CPUC found that IOUs, energy  
          service providers (ESPs), and community aggregators must have  
          adequate resources to meet forecasted peak load plus a 15% to  
          17% reserve margin by 2008.  This order applies to almost all  
          retail electric service providers other than POEUs. 
          SB 1078 (Sher), Chapter 516, Statutes of 2002, required all  
          retail electricity providers to create a RPS by increasing their  
          total amount of renewable resources by at least one percent per  
          year, until 20% of their retail sales are procured from  
          renewables.  This bill specifically exempted POEUs from the 20%  
          RPS, and merely required each governing body of a POEU to  
          implement a RPS that recognizes the intent of the Legislature to  
          encourage renewable resources. 
          The common theme to both AB 57's procurement process and RPS is  
          while POEUs represent approximately 25% of the retail load  
          served in California, they have been exempted from the major  
          policy decisions aimed at assuring the state has sufficient  
          clean and reliable resources to meet future demand and avoid  
          future rolling blackouts.  POEUS argue that because they are  
          ultimately responsible to voters and not shareholders they will  
          naturally act in the public interest and do not need additional  
          state oversight.  This argument ignores the increasing need to  
          view resource adequacy from a statewide perspective.  Because  
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          the California electricity distribution grid is a statewide  
          integrated system, when there are inadequate resources to meet  
          demand the entire grid can become unstable.  Since POEUS  
          generally rely on the same distribution grid as other retail  
          providers, any failure of a POEU to meet customer demand can  
          cause instability across the entire grid.
          AB 2499 does not address the full inequity and instability of  
          the current procurement rules, but instead focuses on a growing  
          risk to instability and reliability caused by the creation of  
          new municipal utilities.  Since the energy crisis in 2001, a  
          number of local governments have proposed forming municipal  
          utilities in hopes of providing their residents and business  
          with lower rates.  The author is concerned that since these new  
          municipal utilities do not have experience in procuring power  
          and have little or no ability to produce their own electricity,  
          they will not be able to meet their own resource adequacy needs.  
           To assure that these new municipal utilities do not threaten  
          the reliability of the entire integrated distribution grid, AB  
          2499 requires these new electricity providers to show they can  
          meet the needs of their own customers. 
           All Things Created Equal
           
          While this legislation is a clear step in the right direction  
          toward creating a fair and reliable resource adequacy standard  
          it still leaves an unequitable system in place.  While most  
          retail electricity providers must meet a resource adequacy  
          standard, 25% of the load will remain free to set any standard  
          they wish.  This bill will also create different standard for  
          different POEUs depending on when they were formed.  The state  
          may be better served if all POEUs were required to meet the  
          resource adequacy standards. 
          Opponents of this bill argue that this bill would make it  
          impossible for POEU to compete with IOUs.  If this argument is  
          true, then it is also an admission that POEUS do not or will not  
          meet the same resource adequacy standards as other retail  
          providers since meeting the same 15% reserve requirement should  
          not create a higher costs for POEUs. 
           REGISTERED SUPPORT / OPPOSITION  :   
           Support 
           
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          Congress of California Seniors
          Sempra Energy
          Pacific Gas and Electric
          Southern California Edison
          The Utility Reform Network (TURN)
           Opposition 
           
          Alameda Power & Telecom
          California Municipal Utilities Association
          City of Azusa
          City of Pasadena
          City of Rancho Cucamonga
          City of Roseville
          League of California Cities
           
          Analysis Prepared by  :    Edward Randolph / U. & C. / (916)  
          319-2083