BILL ANALYSIS
Appropriations Committee Fiscal Summary
888 (Dunn)
Hearing Date: 6/4/03 Amended: 5/20/03 and
proposed to
be amended
Consultant: Lisa Matocq Policy Vote: E, U & C
5-3
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BILL SUMMARY: SB 888 enacts the Repeal of Electricity
Deregulation Act of 2003, as specified.
Fiscal Impact (in thousands)
Major Provisions 2003-04 2004-05
2005-06 Fund
PUC Unknown, potentially $1,700 annually, should
Special*
be offset by fee revenues
Direct access phase- Unknown, potentially $17,000-$31,700/year
General**
out beg. 2004/05, for potential
increased energy costs
to UC, CSU, community colleges,
School facilities rate Potentially significant energy cost
savings General**
*Utilities Reimbursement Account (URA)
**$7 million could count toward meeting the minimum funding
guarantee.
STAFF COMMENTS: SUSPENSE FILE. AB 1890 (Brulte, Ch. 856,
St. of 1996) enacted the Electrical Restructuring Act of
1996. AB 1x (Keeley, Ch. 4, St. of 2001), among other
things, directed the Public Utilities Commission (PUC) to
suspend direct access in order to ensure a sufficient
revenue stream to satisfy the Department of Water
Resources' (DWR) costs for electricity procurement. The
PUC suspended new direct access transactions in 2001, with
certain exceptions. This bill:
repeals the former legislative findings regarding
electricity deregulation and establishes new ones
relating to direct access, policy goals, and regulation;
imposes numerous regulatory responsibilites on the PUC;
phases out direct access, except as otherwise specified,
by January 1, 2005 or the expiration of current
contracts, whichever is later;
requires the PUC to submit to the Legislature, by June 1,
2004, a plan for implementation of a "core/noncore"
model, as specified, and states legislative intent that
no new direct access transactions be authorized until the
commission approves a plan;
requires the PUC to establish special bundled service
rates for public school facilities that reflect their
unique peak usage;
makes related changes.
It is unknown what the long-term impact of eliminating
direct access will be. However, University of California
(UC), California State University (CSU),
community colleges, and some K-12 school districts,
including Los Angeles Unified have direct access contracts.
Any future increased costs resulting from
the termination of direct access are indeterminable.
However, using current market rates (taking into
consideration a proposed 20% rate reduction in
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Southern California Edison's [SCE] territory), and their
average direct access rates, increased costs to UC, CSU,
and the community colleges could be $31.7 million annually.
Increased costs to K-12 schools are unknown, but
potentially significant. Any costs would be incurred upon
the expiration of their current contracts or January 1,
2005, whichever is later. STAFF NOTES that some contracts
do not contain "expiration dates" but rather require prices
to be renegotiated periodically. The author may wish to
consider amending the bill to address this issue.
On May 13, 2003, Governor Davis announced that the DWR
lowered its revenue requirement by approximately $1
billion, which will result in a rate reduction for the
three major investor-owned utilities. SCE also recently
proposed a rate reduction and settlement that would lower
rates by more than $1 billion. As part of that proposal,
schools are expected to receive a 13.3% rate reduction.
Annual electricity costs for K-12 schools are estimated at
about $750 million. Superintendent O'Connell recently
asked the PUC to modify SCE's proposal by increasing the
rate reduction for schools from 12.8% to 30%, and reducing
the rate reduction for commercial, industrial, and
agricultural customers.
To the extent that rates are reduced for public schools as
a result of this bill, there could be unknown, but
potentially significant, energy cost savings. Staff notes
that many public schools are year-round (228 of the 700
schools in L.A. Unified), and therefore, it is unknown to
what extent they would fall into a unique peak usage
category. STAFF RECOMMENDS that the bill be amended to (1)
define "public school facilities" and clarify whether
leased facilities would be subject to the special rate, and
(2) include a deadline for the PUC to establish the special
rate for schools.
PUC staff indicate that they will need 20 new positions to
comply with the requirements of the bill, at a cost of $1.7
million; future year costs are unknown, but significant.
URA revenues are derived from an annual fee imposed on
public utilities. Therefore, increased costs should be
offset by fee revenues.
Proposed author amendments (1) add the goals of
"environmentally clean, and efficient" electricity service;
(2) modify the return on investment language; (3) require
the PUC to adopt standards for the operation and
stewardship of lands owned or operated by electrical
corporations in order to ensure that those lands are
managed in a manner consistent with applicable laws that
protect public health, the environment, species, habitat
and other resource values; and (4) make related changes.
AB 428 (Richman and Canciamilla), pending on the Assembly
Floor, establishes a process for non-core customers to
obtan electricity through direct access purchases with
suppliers other than IOUs, and makes related changes. AB
816 (Reyes), pending on the Assembly Floor, reinstates the
direct access purchase option for specified customers.