BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1575 - Soto Hearing Date:
April 13, 2004 S
As Amended: March 23, 2004 FISCAL B
1
5
7
5
DESCRIPTION
Existing law:
1.Authorizes retail competition (direct access) within the service
areas of the investor-owned utilities (IOUs) and permits
aggregation of direct access customers (AB 1890 (Brulte),
Chapter 856, Statutes of 1996).
2.Requires the California Public Utilities Commission (CPUC) to
suspend the right of retail customers of IOUs to acquire
electric power service from non-IOU providers until the
Department of Water Resources (DWR) no longer supplies power to
IOU customers (AB 1X (Keeley), Chapter 4, Statutes of 2001).
Pursuant to AB 1X, the CPUC suspended direct access as of
September 20, 2001.
3.Establishes a general exemption from the direct access
suspension for community aggregation undertaken by cities and
counties serving customers within their jurisdictions, subject
to provisions to ensure cost recovery from customers departing
from IOU service (AB 117 (Migden), Chapter 838, Statutes of
2002).
This bill exempts a joint powers authority (JPA) providing
electricity service within the boundaries of a former military
base that has been closed by the federal government from AB 117's
provisions to ensure cost recovery.
BACKGROUND
As part of the restructuring of the electric industry, AB 1890
authorized direct access. To avoid the dysfunctional spot market
that financially decimated the IOUs and threatened catastrophic
rate increases, AB 1X established a structure to permit DWR to buy
needed electricity for IOU customers under long-term contracts.
To ensure the predictable revenue stream necessary to pay for the
long-term contracts, the issuance of ratepayer-backed revenue
bonds, and prevent cost-shifting from direct access to bundled
service customers, the CPUC was directed to suspend direct access
to prevent additional migration of IOU customers. The CPUC
suspended direct access on September 20, 2001.
In 2002, AB 117 authorized a conditional exemption from the direct
access suspension for community aggregation undertaken by a city,
county, or a group of cities and/or counties in a joint powers
agency. Community aggregation is a form of direct access where,
for example, a city may act as a purchasing agent on behalf of its
residents. AB 117 limits service to customers within the
aggregating entity's jurisdiction.
Implementation of AB 117 is contingent on the CPUC's adoption of a
mechanism to recover costs incurred by IOUs and DWR from each
customer taking IOU service on or after February 1, 2001, who then
departs for service via community aggregation. The CPUC has yet
to adopt a cost recovery mechanism for community aggregation
customers, or otherwise implement AB 117.
This bill is intended to provide an exemption from the cost
recovery mechanism required by AB 117 for community aggregation
service planned by the Inland Valley Development Authority (a JPA
of San Bernardino, Colton, Loma Linda, and the County of San
Bernardino) for redevelopment of Norton Air Force Base in San
Bernardino.
According to the sponsors, charges to recover DWR costs should not
be applied in this situation because none of the major development
that has taken place was operating during the height of the energy
crisis and therefore there was no capacity acquired to serve
existing load. The sponsors also contend the load forecasts
prepared by Southern California Edison supportive of the DWR
acquisitions did not include capacity needs at the base closures.
Therefore, none of the DWR purchases were attributable to the base
closure services.
COMMENTS
1.This case can be argued and decided at the CPUC without
reversing AB 117's cost recovery scheme. Sponsors argue that AB
117 reflects a "one size fits all" approach to cost recovery,
which is unfair given their particular circumstances. However,
they have yet to lose, or even argue, their case at the CPUC,
which must adopt cost recovery rules according to AB 117's
direction.
The CPUC has yet to adopt general rules for community
aggregation or review any specific proposals for formation of a
community aggregation program. Community aggregators will have
an opportunity there to present evidence to support partial or
full exemption from surcharges to recover DWR and IOU
procurement costs.
In enacting AB 117, the Legislature expressed its intent that
all customers who took service from DWR pay a "fair share" of
DWR costs, but left the determination of specific charges to the
CPUC. AB 117 also provides that IOU costs are recoverable from
customers departing for community aggregation if they are
"attributable to that customer." Again, the CPUC must decide
whether costs are attributable to a customer before imposing
specific charges.
The proponents of this community aggregation can be expected to
make a case that such costs are not attributable to the
customers they plan to serve and should be paid by other
customers instead. In this case, the author and the committee
may wish to consider whether it's premature to grant an
exemption from the cost recovery rules before the CPUC has
established them.
2.Cost shifting implications are unlimited. The exemption in this
bill is dependent on who the community aggregator is (a JPA) and
where they are providing service (a former military base).
These conditions are intended to make the Inland Valley
Development Authority eligible and otherwise limit the scope of
the exemption. However, the conditions have no relevance to the
question of whether the exemption is justified.
An exemption of this nature invites any other proposed community
aggregation, such as City X providing service to residents who
want cheaper electricity, to seek a legislative exemption from
the cost recovery provisions community aggregation proponents
agreed to in AB 117 in order to justify their exemption from the
suspension of direct access.
Cost recovery was part and parcel of the agreement that enabled
AB 117 to succeed. Providing exemptions invites a reassessment
of whether community aggregation is a good public policy.
3.Conditions for exemption should match the arguments for
exemption. The sponsor's argument for unique treatment is not
that they are a JPA, or that they are serving a former base.
Instead, the argument is that the load they are interested in
serving was not served by SCE or DWR during 2000/2001, and DWR
didn't plan to serve it when it signed long-term contracts.
If the arguments for a legislative exemption are convincing in
this case, the author and the committee may wish to consider
whether the bill should instead say that cost recovery
surcharges may not be imposed on customers who were not served
by the IOU or DWR during the time the subject costs were
incurred. The factual determination of whether a customer meets
such a standard should be made by the CPUC based upon evidence.
4.Bill exempts the JPA providing electric service, but not its
customers. AB 117 provides that the electricity costs to be
recovered are the responsibility of customers , and may not be
avoided by switching to another provider. By saying the charges
are not applicable to the JPA, this bill would exempt the JPA
itself as a customer, but would not exempt the customers of the
JPA. If the intent is to permit the customers of a community
aggregation to avoid the charges, the author and the committee
may wish to consider amending the bill to say the charges are
not applicable to the customers, rather than the service
provider.
POSITIONS
Sponsor:
City of Colton
Support:
Colton Public Utilities
Inland Valley Development Authority
San Bernardino International Airport Authority
Southern California Public Power Authority
Oppose:
Sempra Energy
Lawrence Lingbloom
SB 1575 Analysis
Hearing Date: April 13, 2004