BILL ANALYSIS
AB 67
Page 1
Date of Hearing: May 2, 2005
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
AB 67 (Levine) - As Amended: May 2, 2005
SUBJECT : Public Utilities Commission: rates.
SUMMARY : Requires the California Public Utilities Commission
(PUC) to annually provide a 10-year forecast of the elements of
electricity rates to the Legislature. Specifically, this bill :
1)Requires the PUC to provide to the Legislature by June 1,
2006, and by June 1 annually thereafter, a 10-year forecast of
the elements in electricity rates within each class of
ratepayers for each electrical corporation.
2)Permits the PUC to require submission of pro-forma analyses,
debt-retirement schedules, amortization schedules, wholesale
energy cost projections, resource plans, market assessments,
and related outlooks from electrical corporations, gas
corporations, and energy market participants.
3)Requires the PUC to include in the report a detailed
description of any changes in projections or assumptions that
may be different from the previous year's forecast.
EXISTING LAW :
1)Requires all charges demanded or received by any public
utility for any product or commodity shall be just and
reasonable.
2)Prohibits a public utility from changing any rate or so alter
any classification, contract, practice, or rule as to result
in any new rate, except upon a showing before the PUC and a
finding by the PUC that the new rate is justified.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to provide transparency of the elements of the electricity rates
of the investor-owned utilities (IOUs). More specifically, the
author is interested in when the elements of rates that resulted
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from deregulation, such as the costs associated with the State
purchasing electricity for the IOUs and the Pacific Gas and
Electric (PG&E) bankruptcy, will sunset or retire. In addition,
the bill is intended to provide the Legislature with a clear
understanding of the impacts proposals for new or augmented
programs will have on electricity rates.
1) Background : During the energy crisis of 2000-01, electricity
rates escalated. The State had to purchase electricity for the
IOUs because they were not credit-worthy due to market rules
that were in place at the time. As a result, PG&E declared
bankruptcy. The State issued millions of dollars in bonds for
the Department of Water Resources (DWR) to procure energy
through long-term contracts on behalf of the IOUs. Some are
concerned that these contracts are higher-priced because due to
the energy crisis, the State was placed in an unfavorable
bargaining position. Others point to provisions in the contracts
that give the energy seller the choice of where the electricity
will be delivered, which can drive up the price. Although many
of the contracts have been renegotiated, each of these elements
may have caused rates to increase. There was a general
understanding that eventually, rates would decline back to more
"normal" levels as the costs of the energy crisis and bond costs
expired. It is difficult to determine whether that has happened,
and if so, by how much.
2) DWR contracts and bond costs : There is uncertainty
surrounding the annual costs of the DWR contracts and the bond
debt. The DWR contracts are billed through the IOUs' generation
charge, and some believe, put upward pressure on the price of
electricity. Some of these contracts start to fall off sharply
in about 2009 and completely expire by 2012.
During the energy crisis, the State used General Fund moneys to
purchase electricity, then issued about $11.9 billion in bonds
to pay back the General Fund and provide funding for DWR to
purchase additional power. The State issued 20-year bonds to get
a favorable bond rate, and the bonds will be paid off in 2022.
3) The Cost Responsibility Surcharge : In July 2001, the
Legislature directed the PUC to suspend direct access; however,
the PUC did not formally suspend it until September 20, 2001.
During the interim, many customers migrated to direct access,
which was not saddled with the costs of the energy crisis. The
PUC determined that existing IOU customers should not be
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burdened with a greater share of the costs of the energy crisis
and initiated a rulemaking to develop a Cost Responsibility
Surcharge (CRS) to mitigate this potential cost shifting. The
extraordinary energy prices during the 2000-01 crisis also
created an incentive for other customers to leave IOU service,
called "departing load" other than direct access. Thus, the PUC
applied the CRS principles to this departing load. The CRS
includes DWR bond charges to recover financed historic
shortfalls, DWR power charges, and Historic Procurement Charges
(HPC) in SCE's territory resulting from departing load.
The CRS is adjusted annually and the electric service providers
are unable to predict or plan on these charges. According to
California Manufacturers and Technology Association (CMTA), the
methodology for determining the direct-access CRS (exit fee)
causes significant delays in assessing direct-access customers
for these charges. As of April 2005, direct-access customers do
not have trued-up figures for 2003 or even estimates for 2004.
They do not know the status of their CRS undercollection as of
the end of 2004, or the accrual rate for 2005. According to
CMTA, it is difficult for direct-access customers to make
rational business decisions about whether to remain direct
access, return to bundled service, or build self-generation, if
they do not know, with any certainty, their past and prospective
CRS liability.
4) Most recent legislative proposals : IOUs are currently
expected to meet load growth and replace the DWR contracts over
the next several years via the procurement process initiated by
the PUC pursuant to AB 57 (Wright) Chapter 835, Statutes of
2002. The PUC has recently approved contracts for new power
plants to serve IOU customers which will be completed in the
2006-09 timeframe. The IOUs are required to buy additional
renewable power under long-term contracts pursuant to SB 1078
(Sher) Chapter 516, Statutes of 2002, in compliance with the
Renewable Portfolio Standard (RPS). The Governor, the energy
agencies, and pending legislation have endorsed accelerating the
RPS schedule. Under the recent PUC long-term procurement
decision (D.04-01-050), IOUs will be obligated to build or buy
resources to meet a 15-17 percent reserve margin by 2008. The
Governor has asked the PUC to accelerate achievement of the
reserve margin by next summer. In addition, the energy agencies
have adopted a goal of decreasing per-capita energy consumption.
The IOUs and their customers are the primary vehicle to deliver
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all of the above. These initiatives, on top of existing
obligations for utility generation, qualifying facilities, and
DWR contracts, have uncertain effects on electricity rates.
5) Pandora's box : This bill would require the IOUs to forecast
all elements within rates using a 10-year projection. According
to Sempra, the forecasts may influence unanticipated business
decisions or send misleading price signals to the markets. In
addition, costs to serve customers, generation, transmission,
and distribution, are addressed in the PUC forum and the
forecast should not be deemed conclusive. Sempra added that this
bill includes elements (generation, transmission, and
distribution) that may not be the basis of determining the
discretionary uncertainties, or the extra costs attributable to
the energy crisis that this bill is intended to address. This
concern has merit; however, if all rate elements are forecasted
as required by this bill, legislative members would have a
greater understanding of the effects of their proposals on the
bottom line; customers' electricity rates.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Gina Mandy / U. & C. / (916) 319-2083