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

          SB 659 -  Soto                     Hearing Date:  April 22, 2003  
                S
          As Amended: April 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 this provision permanent, but allows an  
          exception for a reasonable minimum monthly bill.

                                      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.Minimum bill vs. fixed charge.   As it was heard in this  
            committee on April 8, this bill required  all charges  for  
            residential electric customers to be volumetric, and not  
            fixed.  This applied to charges for the electric energy  
            itself, but it also included the charges for delivering the  
            energy (i.e., transmission and distribution).  However, 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).

            As amended, this bill now permits a reasonable (as determined  
            by the CPUC)  minimum monthly bill  .  A minimum bill allows an  
            IOU to recover basic costs of serving a low-volume customer,  
            while preserving the policy that, once the minimum is reached,  
            all charges must be based on consumption.  In contrast, a  
            fixed charge is a charge all customers would have to pay on  










            top of all of their consumption-based charges.  This bill  
            still prohibits such fixed charges.

                                       POSITIONS
           
           Sponsor:
           
          The Utility Reform Network (TURN)

           Support:
           
          California Coalition of Utility Employees

           Oppose:
           
          Sempra Energy
          Southern California Edison






          Lawrence Lingbloom 
          SB 659 Analysis
          Hearing Date:  April 22, 2003