BILL ANALYSIS
SB 888
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Date of Hearing: July 10, 2003
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Sarah Reyes, Chair
SB 888 (Dunn) - As Amended: July 8, 2003
SENATE VOTE : 21-16
SUBJECT : Public utilities: electrical restructuring.
SUMMARY : Repeals provisions relating to implementing a market
based electric industry structure under AB 1890 (Brulte),
Chapter 854, Statutes of 1996, including modifying the existing
definitions that govern regulatory policy for investor owned
utilities. Specifically, this bill : Repeals the following
provisions relating to implementing a market based electric
industry structure under AB 1890:
1)Repeals the legislative findings and declarations for
electricity deregulation under AB 1890. This bill deletes
obsolete language governing the powers and duties of the
bankrupt Power Exchange (PX). Deletes provisions requiring
the bylaws governing the Independent System Operator (ISO),
the Electricity Oversight Board (EOB) and PX to be consistent
with the statutory responsibilities of the Federal Energy
Regulatory Commission (FERC).
2)Deletes obsolete reporting requirements for ISO to the
Legislature and EOB. Repeals legislative findings and intent
language governing the ability of PX to perform its duties,
including the Legislatures goals for PX.
Establishes that:
1)Electricity is a unique good in modern society and that access
to safe, reliable, clean, efficient, and affordable electrical
service is indispensable to the health, comfort, and
well-being of every person and business in California.
2)PUC in carrying out its duties under this section assure
reliable service at the lowest reasonable cost.
3)Intent of the Legislature is to achieve effective state
regulation of the state's public utilities in order to protect
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ratepayers, ensure adequate and efficient electrical service,
to protect public health and the environment, and to pursue
the following goals:
(a) Ensure that PUCs first priority in
carrying out its duties is to protect consumers.
(b) Restore and affirm the public utilities
obligation to serve.
(c) Protect public health and the environment.
(d) Establish a comprehensive integrated
resource planning process that is balanced,
reliable, environmentally responsible and consistent
with a cost effective mix of customer owned, utility
owned and non utility supply and demand reduction
resources. The planning process must also be
consistent with existing law on IOU long-term
procurement, air emission standards, the California
renewable portfolio standard program, and the
integrated energy policy report.
(e) Provide an open regulatory forum for
ratepayers to observe and participate in the
decision making process at PUC.
4)Eelectrical corporations and gas corporations that serve
retail customers have an obligation to serve those customers
with reliable service at just and reasonable rates. This
obligation to serve includes a duty to furnish and maintain
adequate, efficient, just and reasonable service,
instrumentalities, equipment, and facilities that are
necessary to promote the safety, health, comfort and
convenience of customers, employees, and the public while
promoting a sustainable environment.
5)Obligation to serve definition for electrical corporations and
gas corporations include the obligation to plan for and
provide sufficient, affordable and reliable resources, which
includes utility owned and procured generation resources,
renewable generation resources, transmission and distribution
resources, and cost effective energy efficiency resources.
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6)PUC ensure that electrical corporations are given the means to
carry out their obligation to serve by having the following:
(f)Reasonable opportunity to fully recover from all
customers pursuant to this code reasonable costs to
operation and maintain those resources;
(g)Reasonable compensation for employees;
(h)Return of and a reasonable return on reasonable
investments in utility owned generation,
transmission, and distribution;
(i)Reasonable costs for procured generation resources
in accordance with PUC approved long term
procurement plans.
7)ISO, in consultation with PUC, adopt and periodically review
and update inspection, maintenance, repair, and replacement
standards for transmission facilities. PUC shall adopt and
review maintenance standards for distributions systems of
investor owned electrical utilities (IOUs) and review the
standards set by ISO for transmission facilities. In setting
these standards PUC shall consider:
(j)Cost;
(aa)Local geography and weather;
(bb)Applicable codes;
(cc)National electric industry practices;
(dd)Sound engineering judgement and;
(ee)Experience.
8)PUC conduct a review to determine whether transmission and
distribution standards set by ISO in consultation with PUC is
met. If standards are not met PUC can impose penalties in the
form of rate reductions or monetary fines, which shall go to
offset funding for the California Alternative Rates for Energy
Program.
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9)ISO is prohibited from entering into a multi state regional
transmission organization unless it is approved by EOB and
then approved by a concurrent resolution by Legislature.
10)A Ratepayer Refund Account for each electrical corporation.
IOUs are to deposit any excessive costs during the energy
crisis for wholesale electricity that are recovered in the
Ratepayer Refund Account and dispersed for the benefit of
ratepayers.
11)PUC regulate public utility owned generating facilities to
ensure that the service provided is environmentally clean,
efficient, cost effective to ratepayers, and adequate.
Furthermore, IOUs must make direct investments in or contract
with any entity dedicated to serve customers connected to an
electrical corporation distribution system or grid consistent
with procurement plans approved by PUC.
12)All metering of customers usage to be performed by the
electrical corporation and no customer with an average usage
of less than 1,000 kilowatthours per month is required to take
service under a time of use rate.
13)An incentive mechanism to be developed consistent with
existing incentive mechanisms for market or PUC authorized
benchmarks for power procurement for demand reduction
resources and ensures a timely recovery of all costs for
demand reduction incurred by IOU.
14)PUC create and oversee a long term, comprehensive integrated
resource planning process that results in a balanced,
reliable, environmentally responsible portfolio of supply and
demand reduction resources consistent with provisions for long
term contracts for IOUs and existing air emission and
renewable resource goals for generators.
15)PUC when implementing its procurement plan for IOUs first
acquire all available cost effective energy efficiency
resources or demand reduction resources compared to long term
resource options.
16)Reasonable expenditures by transmission owners that are
electrical corporations to plan, design, reconfigure, replace
or expand transmission facilities or other cost effective
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transmission alternatives, including demand side alternatives
for the purpose of delivering lower cost power to ratepayers
are in the public interest and deemed prudent.
17)Electrical corporations provide service that is
environmentally clean, efficient and cost effective for
ratepayers consistent with provisions of the renewable
portfolio standard program (RPS), IOU long term procurement
contracts, air emission standards and the integrated energy
policy report.
18)PUC approve rates that provide an electrical corporation a
reasonable opportunity to recover its reasonable costs of
operating, its reasonable investment in, and a reasonable
return on its investments on its generation plants.
19)PUC may require an electrical corporation to make direct
investments in, or contract with any public or private
electric generation entity dedicated to serve the customers
connected to the distribution system or grid consistent with
PUC approved long term procurement plans for IOUs.
20)In order for PUC to approve rates for IOUs that make direct
investments for construction of electric generation plants it
must first hold a hearing and implement the decision in a
transparent process that achieves a balanced, reliable,
environmentally responsible and cost effective resource
portfolio. PUC can use any entity including the following for
IOUs to meet the requirements for direct investments:
(ff)The California Consumer Power and Conservation
Financing Authority;
(gg)California municipalities;
(hh)Cooperatives and;
(ii)Joint power authorities.
21)PUC in requiring IOUs to make direct investments for
construction of electric generation plants shall also protect
the interests of consumers by ensuring that investments made,
that are either rate based or through long term contracts, be
the most cost effective and efficient provision of electricity
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for consumers.
22)Declaratory language saying that is the intent of the
Legislature to reaffirm, without requiring revision,
California's doctrine, as reflected in regulatory and judicial
decisions, regarding electrical corporation's reasonable
opportunity to recover costs and investments and the
reasonable opportunity to attract capital for investment on
reasonable terms.
EXISTING LAW :
1)Established provisions for restructuring the electric industry
in California and provided for the following:
a) ISO to manage the transmission grid in IOU service
territories, subject to regulation by FERC;
b) PX, providing an auction system to determine wholesale
electric prices;
c) EOB to oversee ISO and PX;
d) Market valuation of IOU owned generation to facilitate
divestment and enhance competition in the generation
market;
e) Direct retail transactions for electricity and
registration of Electric Service Providers (ESPs) marketing
electricity to retail customers;
f) Unbundling of generation, transmission, and distribution
services, reflected in separate charges on consumers'
electric bills;
g) Four year rate freeze for residential and small
commercial customers during a transition period ending in
2002;
h) Competition transition charge (CTC) to pay amortization
costs of stranded utility generation assets;
i) Rate reduction bond to finance a 10 percent rate
reduction for residential and small commercial customers
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during the transition period;
j) Public goods charge (PGC) to provide for competitively
neutral assessment of subsidies for energy efficiency,
conservation, and low income programs;
aa) Authorization for publicly owned utilities (POUs) to
implement retail competition.
2)Specified the framework, responsibilities and functions of
EOB.
3)Provided for additional consumer protections for ESP
customers, through third party verification and other forms of
disclosure when switching to another entity than an IOU for
electric service.
4)Replaced the stakeholder governing board of ISO with a five
member board appointed by the Governor and confirmed by the
Senate.
5)Prohibited divestment of any IOU retained generation assets
until January 1, 2006, eliminated market based valuation of
IOU retained generation, and retained cost of service
regulation over IOU generation assets.
6)Required PUC to suspend direct transactions.
7)Required PUC to develop and enforce generator maintenance and
performance standards cooperatively with ISO.
8)Required IOUs to meet RPS as specified.
FISCAL EFFECT : Unknown.
COMMENTS :
"Repeal of Electricity Deregulation Act of 2003:" Most of the
provisions of this bill repeal the existing law that establishes
the structure of a market based electric industry and the duties
and powers of agencies like ISO, EOB and PX to administer and
run this new system. Other provisions being deleted in this
bill give guidance to PUC in developing the cost recovery
mechanisms and its ancillary functions (i.e., Transition Cost
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Balancing Account (TCBA) and (CTC)).
This bill contains language that adds new provisions to an IOU
obligation to serve, rate of return and cost recovery, while
also deleting specified language in existing law affecting these
definitions. Furthermore, this bill contains language that
places a higher priority on the demand side reduction programs
compared to long term procurement contracts, including elevating
an IOUs environmental responsibilities to the same level as
ratepayer responsibilities.
Environmental provisions: One of the areas of focus for this
bill is to promote and prioritize demand reduction programs,
including strengthening references to existing law on RPS and
new service standards for electrical corporations to provide
environmentally clean, efficient power that is cost effective to
ratepayers. The inclusion of demand side reduction as well as
prioritizing it over long term procurement options is somewhat
consistent with existing policies on decreasing energy
consumption by consumers through incentives, rebates and
education. The committee may want to note that this bills focus
on highlighting additional environmental/renewable language
seems to start moving the definition of obligation to serve away
from ratepayers to other broader social issues like preserving
the environment. While environmental concerns are important
this added obligation will create upward pressure on consumer
rates as a result of requiring the investor owned utilities to
meet yet to be defined conditions on environmentally clean,
efficient and sustainable requirements.
Obligation to serve: Traditionally, obligation to serve
requirements originated from common law doctrine in England. In
the United States the concept of an obligation to serve for
entities other than common carriers began to emerge after the
United States Supreme Court spoke in Munn v. Illinois in 1876,
which stated that government can regulate property that becomes
"clothed with a public interest" and when used in a manner to
make it of public consequence, and affects the community at
large.
Cost recovery and rate of return: This bill directs PUC to
ensure that IOUs are afforded the means to carry out their
obligation to serve as prescribed in this bill specifying that
cost recovery should include a reasonable opportunity to fully
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recover from all customers reasonable costs to operate and
maintain their resources, including reasonable compensation for
employees. Furthermore, this bill includes an allowance that
IOUs should receive a reasonable return on and return of
reasonable investments in utility owned generation,
transmission, and distributions resources.
Direct Access (DA): This bill deletes all the previous
provisions of direct access that included the core/noncore study
to be developed by PUC and the grandfathering in provisions for
direct access customers before April 1, 2003.
The July 9, 2003 amended version of this bill deletes all
provisions of direct access that previously repealed existing
law governing how direct access was to be implemented.
Furthermore, this bill has been amended seven times since its
introduction and has always included a repeal of direct access
but in the latest amended version direct access is left alone.
Understanding the history of this bill and what it seeks to
accomplish by reregulating electric utilities and eliminating DA
will this bill in future amendments not go back to repealing
direct access?
Also, this bill does not reinstate direct access. Direct access
was suspended by AB X1 1 (Keeley) and implemented by PUC in
Decision 02-03-055. The suspension date for direct access was
set at September 20, 2001. Under AB X1 1 DA was to be
reinstated upon the Department of Water Resources (DWR) no
longer supplying power for IOUs. Proponents and opponents of DA
are currently arguing over whether under AB X1 1 DA can be
reinstated as a result of IOUs taking administrative control
over DWR power contracts and the state no longer officially
procuring power on their behalf. Still absent clear legislative
direction to reinstate DA it may take months or years for the
regulatory agencies, utilities, and private generators to come
to agreement on the direct access suspension language in AB X1
1.
There are over 70,000 DA customers of which 35.4 percent of DA
load is from industrial customers who are over 500 kW. Based on
the September 20, 2001 cutoff date the number of DA customers
breaks down in the following ways:
--------------------------------------------------------------
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|PG&E |SCE |SDG&E |
|---------------------+---------------------+------------------|
|14.83 percent |10.99 percent |20.10 percent |
--------------------------------------------------------------
PUC Decision 02-03-055 (Rejecting Earlier Date for the
Suspension of DA) detailed that between July 1, 2001 and
September 20, 2001, approximately 11 percent of total electric
load of the utilities shifted from bundled serve to DA service
leaving some percentage of DWR revenue requirements to be picked
up by bundled customers. Subsequently PUC issued decisions
establishing a cost responsibility surcharge (CRS), which was
later capped at 2.7 kWh to ensure that bundled customers remain
indifferent.
Generation/Procurement: This bills' main focus is to put to bed
the idea of a deregulated energy marketplace and replace it with
a more stable, but historically more costly and inefficient,
energy policy that relies on IOU generation under a consistent
rate of return. This bill contains language that allows PUC to
require electrical corporations to make direct investments for
the construction of electric generation plants, consistent with
the provisions established under AB 57 (Wright) (Long Term
Procurement Plans) and under SB 1078 Sher (Renewable Portfolio
Standards). The proponents believe that making these changes to
existing law and deleting the remaining provisions from AB 1890
(Brulte), including modifying the definition of a utilities
obligation to serve, rate of return and cost recovery, will
allow the financial markets to reinvest in the utilities in this
state. The committee may want to note that a lot of the
provisions in this bill seek to codify broader regulatory and
social issues for the purpose of prescriptively trying to manage
the actions of the current PUC or future PUCs. This argument is
supported by language in this bill restating the existing PUC
responsibilities to provide reliable service at the lowest
reasonable cost, which is not needed since PUC already adheres
to this principle. Is it the committee and the Legislature's
desire to bind PUC to just strictly interpreting and enforcing
legislative mandates and is the Legislature willing to take on
the task of ratesetting responsibilities that are better left to
regulatory bodies under the policy direction that this bill
seems to taking? Currently, PUC has initiated numerous
proceedings to meet the mandates set by the Legislature during
and after the energy crisis. In the past the proponents have
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disagreed with decisions made by PUC on issues like DA cost
responsibility surcharge cap (i.e., otherwise called the forced
loan) but this should not be the reason to tie PUCs ability to
function independently of the Legislature. The best policy
would seem to be to allow things to settle down and allow the
energy market to absorb all the changes that have and are being
made before trying to start something new.
Previous legislation enacted during and after the energy crisis:
AB X1 1 (Keeley), Chapter 4, Statutes of 2001-02, suspended DA
and established DWR as a wholesale electricity purchaser for
the customers of financially troubled, regulated utilities and
authorized revenue bond financing to repay the General Fund.
AB X1 5 (Keeley), Chapter 1, Statutes of 2001-2002, and SB 47
(Bowen), Chapter 766, Statutes of 2001, provided for
gubernatorial appointment and Senate confirmation of ISO
board.
AB X1 6 (Dutra), Chapter 2, Statutes of 2001-2002, put an end
to market valuation and divestiture of IOU power plants.
AB 57 (Wright), Chapter 835, Statutes of 2002, established a
PUC-regulated procurement planning and cost recovery process
for IOUs.
SB X1 6 (Burton), Chapter 10, Statutes of 2001-2002,
established the Power Authority to facilitate public
investment in cost-based electricity resources.
SB X2 39 (Burton), Chapter 19, Statutes of 2001-2002,
authorized PUC and ISO to establish inspection and maintenance
standards for merchant power plants to ensure their
availability.
SB 1078 (Sher), Chapter 516, Statutes of 2002, required IOUs
to increase procurement of renewable resources subject to a
process overseen by PUC.
SB 1389 (Bowen), Chapter 568, Statutes of 2002, required CEC
to prepare an Integrated Energy Policy Report every two years
based on its assessment of trends in energy markets, including
electricity.
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Related legislation:
AB 428 (Richman) - This bill would establish a core/noncore
retail structure for electricity. This bill passed the Assembly
Committee on Utilities and Commerce on April 30th of this year
and is currently in the Senate Energy, Utilities and
Communication Committee. The bill failed passage at the July
8th hearing.
AB 816 (Reyes) - This bill would reinstate DA under specified
conditions and includes intent language regarding municipal
departing load. This bill passed the Assembly Committee on
Utilities and Commerce on April 7th of this year and is
currently in the Senate Energy, Utilities and Communication
Committee. The bill was pulled by the author at the July 8th
hearing and is currently a two-year bill.
REGISTERED SUPPORT / OPPOSITION :
Support
California Teamsters Public Affairs Council
California Labor Federation
Consumer Federation of California
Utility Workers Union of America
International Brotherhood of Electrical Workers, AFL-CIO
Opposition
AES Pacific, Inc.
Alliance for Retail Energy Markets
Alliance for Retail Marketing
Automated Power Exchange
Bay Area Economic Forum
Boeing Company, Inc.
BP
BP Energy
BP, La Palma
Burney Forest Products
California Biomass Energy Alliance
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
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Californians For Energy Stability
California Manufacturers and Technology Association
California Steel
California Wind Energy Association
California Black Chamber of Commerce
California CoGeneration Council
Calpine Corp.
CalWind
Carpinteria Valley Chamber of Commerce
California Farm Bureau Federation
Callaway Golf
Caithness Energy
CH2M Hill
City of Lindsay
Civil Justice Association of California
Clean Power Campaign (unless amended)
Concordia Resources
Constellation NewEnergy
Consumers Coalition of California
Consulting Engineers and Land Surveyors of California
Consumers Coalition of California
Dollar Tree Stores
Economic Council of Pass Area Communities
EMS
Energy Consulting
Enpower Corp.
Greater Antelope Valley Economic Alliance
GWF Energy, LLC
Hall & Company
Hewlett Packard Company
Honeywell International
Hyde, Miller, Owen & Trost
Inland Empire Manufacturers Council
IBM
Independent Energy Producers Association
Jazz Semiconductors, Inc.
Kings County Economic Development Corp
Los Angeles Unified School District (unless amended)
Marriott Hotels
MJPawlicki Advocacy
National Energy Marketers Association
Northrop Grumman
NRG Energy, Inc.
Ojai Valley Chamber of Commerce and Visitors Center
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Palmdale Chamber of Commerce
PG&E
Porterville Chamber of Commerce
PPG
Proctor and Gamble
Raytheon Company
RealEnergy
Ridgecrest Chamber of Commerce
Saint Gobain Containers
San Diego Regional Chamber of Commerce
School Project for Utility Rate Reduction
Simpson Timber Company
Smurfit Stone Container Corp.
Strategic Energy
Surveyors of California
TAMCO Steel
Trend Offset Printing
TRW, Inc.
USSPOSCO
Visalia Chamber of Commerce
Western Power Trading Forum
Wheelabator
Wine Institute
YMCA Corona-Norco
3 individuals
Analysis Prepared by : Daniel Kim / U. & C. / (916) 319-2083