BILL ANALYSIS                                                                                                                                                                                                              1
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                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                               DEBRA BOWEN, CHAIRWOMAN
          

          SB 659 -  Soto                     Hearing Date:  April 8, 2003   
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          As Introduced:  February 21, 2003       FISCAL           B
                                                                        
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                                      DESCRIPTION
           
           Existing law  requires all investor-owned utility (IOU)  
          residential electricity charges to be based on volume (i.e. no  
          fixed charges) and prohibits IOUs from imposing any new fixed  
          charges.  These provisions sunset on December 31, 2003.

           This bill  makes these provisions permanent.

                                      BACKGROUND
           
          AB 29X (Kehoe), Chapter 8, Statutes of 2001-02 First  
          Extraordinary Session, added Public Utilities Code Section  
          739(c)(3) to prevent any new fixed electricity charges from  
          being imposed on residential IOU customers.  These provisions,  
          which were binding on the California Public Utilities Commission  
          (CPUC) "(a)t least until December 31, 2003," were approved by  
          this committee on March 29, 2001.

          The primary purpose of AB 29X was to fund a variety of energy  
          efficiency and conservation programs.  The provision prohibiting  
          any new fixed charges was intended to maintain customers'  
          incentives to conserve by ensuring people with very modest  
          consumption would pay for energy, transmission and distribution  
          costs only according to the electricity they use, and not via  
          any fixed charges.  Prior to AB 29X's enactment, Southern  
          California Edison proposed to establish a fixed customer charge  
          of approximately $17, which some believe would shift some  
          electricity charges from high-volume users to low-volume users.

          Absent this bill's enactment, the CPUC could permit new fixed  
          charges beginning next year.  According to the sponsor, this  











          bill encourages rate-setting on a basis that's  
          environmentally-sound and doesn't disadvantage low- and  
          moderate-income consumers.

                                       COMMENTS
           
           1.Do purely volumetric charges put utilities and customers at  
            odds over conservation?   Basing electricity charges purely on  
            consumption gives customers an incentive to use less, but it  
            may give IOUs an incentive to deliver more, since IOUs'  
            revenues then depend on the amount of electricity they  
            deliver.  Thus, the IOUs' incentive to maximize revenues  
            competes with their customers' incentives to cut costs.

            The effect on overall electricity use of the IOUs' incentive  
            is mitigated by ratepayer-funded energy efficiency programs,  
            but as long as IOUs are primarily responsible for managing  
            these programs, they face conflicting incentives.

            Rewarding IOUs for delivering more electricity is  
            counterproductive to the extent it perpetuates disincentives  
            for improved energy efficiency and conservation.  Depending on  
            their design, fixed charges can neutralize the IOUs' incentive  
            to deliver more electricity, but they can also disadvantage  
            people who use very little electricity.

          2.Commodity costs vs. delivery costs.   This bill requires  all  
            charges  for residential electric customer be volumetric, and  
            not fixed.  This applies to charges for the electric energy  
            itself, but it also includes the charges for delivering the  
            energy (i.e., transmission and distribution).  Many  
            transmission and distribution costs are fixed, and are not  
            related to individual customer demand (i.e. the same pole,  
            wire, and meter are required to deliver one kilowatt or 1000  
            kilowatts).   The author and the committee may wish to consider   
            whether it's appropriate to prohibit recovery of transmission  
            and distribution costs through fixed charges, or whether the  
            prohibition on fixed charges should be limited to the electric  
            energy commodity.

                                       POSITIONS
           
           Sponsor:
           










          The Utility Reform Network (TURN)

           Support:
           
          None on file

           Oppose:
           
          Southern California Edison













          Lawrence Lingbloom 
          SB 659 Analysis
          Hearing Date:  April 8, 2003





























          
            Whether one believes that requiring purely volumetric  
            electricity charges will achieve greater energy conservation  
            depends on whether one believes it's the customers, or the  
            IOUs, that have a greater capacity to effect conservation.