BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 2803 - J. Horton Hearing
Date: June 22, 2004 A
As Amended: June 14, 2004 FISCAL B
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DESCRIPTION
Current law requires rates for utility service to be "just and
reasonable."
Current law requires the CPUC to assign a commissioner or an
administrative law judge (ALJ) to be the lead hearing officer on
each case. That lead hearing officer is required to prepare a
scoping memo describing the issues in the case, identifying the
type of case, and establishing a timetable for resolution.
This bill requires that in specific CPUC cases, the scoping memo
must also indicate whether there is a need to consider the
economic impact of the issues presented in the case. A
consideration of economic impact shall include the effect on
employment, capital investment, infrastructure deployment,
public safety, or any other element determined to be of economic
significance.
This bill requires that any additional costs resulting from this
analysis will be covered out of existing resources.
This bill would apply to cases initiated on or after January 1,
2005.
BACKGROUND
The CPUC makes many decisions which have a significant impact on
California's economy. Because the CPUC oversees essential
services, albeit to varying degrees, every Californian is
effected by CPUC decisions. These essential services (e.g.
electricity, natural gas, telecommunications, and water service)
cost Californians about $50 billion annually, though the CPUC
directly controls only a fraction of that money.
COMMENTS
1.Considering Whether To Consider Certain Impacts . This bill
gives the CPUC a new duty and, more significantly, a new
criteria for establishing rates.
That new duty is to consider whether the economic impact of a
decision must be considered. If the assigned commissioner or
administrative law judge determines it is necessary to develop
a record on the economic impact of the issues, then parties
may provide a showing to assess whether the ratesetting or
quasi-legislative case is likely to affect employment, capital
investment, infrastructure deployment, public safety, or any
other element determined to be of economic significance.
Traditionally, the CPUC is required to balance the desire of
customers to have the lowest rates and the highest service
quality possible with the utility's desire, and constitutional
right, to have a reasonable opportunity to earn a fair return
on its investment. However, the new criteria established by
this bill would allow the assigned commissioner or
administrative law judge to inject any number of unrelated
issues into the decision-making process.
Consider, for example, a utility seeking permission to close a
call center and outsource those jobs to another country.
Historically, the CPUC would approve that request if it
resulted in lower rates for customers. Under the criteria
established by this bill, the CPUC could reject that request
because it would have a negative effect on employment at the
utility. A different scenario could involve establishing
electric rates, and an economic analysis might be used to show
that high business rates would retard capital investment,
which would lead the CPUC to raise residential rates instead.
The author and committee may wish to consider whether this
flexibility will simply be used to justify a utility's desire
to charge higher rates.
2.Objective Analysis . Economic analyses are advocacy tools.
Because they involve a great deal of speculation about
hard-to-predict things, such as commodity prices, interest
rates, business behavior, employment patterns, and technology
trends, an economic analysis can be used to justify just about
any position a particular entity would like to take.
Parties coming before the CPUC have unequal resources.
Incumbent utilities, other market players, and large customer
groups are certainly well financed enough to be able to pay
for suitable economic analyses that will reflect their point
of view. Other parties, such as small consumer
representatives or potential new entrants, have far fewer
resources and may be unable to pay for competing analyses.
California's intervenor compensation statute offers parties
the chance to recover the cost of their competing economic
analyses from the utility, but only if the CPUC finds the
party has contributed to the case and only at the rate which
the CPUC finds reasonable. It will be a rare party that will
take that chance.
The CPUC won't be doing its own economic analysis on a given
issue. Rather, it will be tasked with "analyzing the
analyses" and determining how much weight should be given to
each analysis.
As a means of providing the CPUC with an alternative economic
analysis, and thereby provide a counterweight to the utility
analyses, the author and committee may wish to consider
requiring the Office of Ratepayer Advocate to perform, or have
performed, a separate economic analysis.
3.Analysis Criteria . The CPUC should, and does, consider the
economic effect of its decisions, but economic impacts are one
of many factors to be considered. What about the effect on
service quality, environmental quality, public health and
welfare, or price stability? This bill puts consideration of
economic impacts ahead of all other effects, which diminishes
the relative importance of other effects. The author and
committee may wish to consider whether this is appropriate.
The bill specifically calls out four criteria to be evaluated
in an economic analysis - employment, capital investment,
infrastructure deployment, and public safety. The author and
committee may wish to consider narrowing these criteria to
include only how a particular decision will affect
Californians. It's of little interest, or benefit, to
California ratepayers if CPUC decisions impact New York or New
Delhi.
The most direct effect of most CPUC decisions is the effect of
changing rates on customers, particularly residential and
small commercial customers. Such an obvious economic effect
should be considered in any economic analysis, and the author
and committee may wish to consider including such a provision
in this bill.
The four specific provisions which the CPUC must consider may
not be good measurements of positive economic effects. For
example, wireless services are far less capital intensive and
result in far less infrastructure deployment than traditional
telephone service. Under this bill should traditional
telephone service receive preferential treatment from the
CPUC? Energy conservation efforts are typically much less
capital intensive than building additional powerplants. Under
this bill, does that mean the CPUC should shun conservation
because it doesn't generate enough capital investment? By
identifying four specific criteria the bill gives those
criteria special weight. The author and committee may wish to
consider whether this is appropriate.
4.Necessary? The CPUC already has authority to compel whatever
information it deems relevant to its decision-making and
consider economic effects when it believes it's appropriate.
In the recently completed telecommunications consumer
protection decision, the CPUC specifically requested comments
on the economic effect of the proposed decision. The author
and committee may wish to consider whether this bill is
necessary given that the CPUC already considers economic
effects today.
5.Who Pays? This bill requires the CPUC to do all of the
analyses with existing resources. A serious evaluation of
economic impacts will cost time and money, and could result in
fee increases. The author and committee may wish to consider
deleting the existing resources limitation, as such a
limitation will only ensure an inadequate analysis.
PRIOR VOTES
Assembly Floor (76-0)
Assembly Appropriations Committee (20-0)
Assembly Jobs, Economic Development and the Economy Committee
(9-0)
Assembly Utilities and Commerce Committee (10-0)
POSITIONS
Sponsor:
California Chamber of Commerce
Support:
SBC
Oppose:
The Utility Reform Network
Randy Chinn
AB 2803 Analysis
Hearing Date: June 22, 2004