BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
MARTHA M. ESCUTIA, CHAIRWOMAN
AB 67 - Levine Hearing Date:
June 30, 2005 A
As Amended: May 2, 2005 FISCAL B
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DESCRIPTION
This bill requires the California Public Utilities Commission
(CPUC) to provide an annual "rate" report to the Legislature.
The report is to provide a 10-year forecast of electricity rates
according to specified criteria.
BACKGROUND
Since early 2001, the electricity rates set by the CPUC for
customers of the state's major investor-owned utilities (IOUs)
have exceeded the IOUs' ongoing cost of service, far exceeding
the rates of in-state municipal utilities or any neighboring
state, and ranking among the highest in the nation.
Prior to 2001, IOU rates had been "frozen" pursuant to AB 1890
(Brulte), Chapter 856, Statutes of 1996. In addition to
freezing rates at 1996 levels for a four-year transition period,
AB 1890 guaranteed a 10% reduction in retail rates for small
customers, and promised larger rate reductions once the
transition period was over.
In the first two years after AB 1890's implementation, the
deregulation experiment appeared to be paying off well for IOUs
and customers alike in California. Service remained reliable,
wholesale prices remained below the frozen retail rates, and the
IOUs' recovery of stranded costs surged, due in large part to
the unexpectedly high prices fetched for the sale of their power
plants.
However, evidence of supplier market power began to surface in
1999. Irregular but enormous price spikes in spot energy and
ancillary services markets raised concerns among observers.
Then, in mid-2000, unprecedented price spikes began to occur
with growing regularity. In San Diego, where the rate freeze
had ended early, San Diego Gas & Electric (SDG&E) customers were
directly exposed to the high prices. Within six months, the
market was in disarray, rolling blackouts occurred during
periods of relatively low electricity demand, suppliers' demands
for extraordinary prices were unchecked, high wholesale prices
caused nearly all customers of the collapsing direct access
market to return to the IOUs' frozen rates, the IOUs became
financially unable to pay for electricity, and the state had to
assume the IOUs' power buying duties to "keep the lights on."
To avoid the dysfunctional spot market that financially
decimated the IOUs and threatened catastrophic rate increases,
AB 1X (Keeley), Chapter 4, Statutes of 2001, established a
structure to permit the Department of Water Resources (DWR) to
buy needed electricity for IOU customers under long-term
contracts.
At the same time, the CPUC raised electric rates to pay for the
high-cost power. In 2001, the CPUC increased rates for the
customers of Southern California Edison (SCE) and Pacific Gas &
Electric (PG&E) a combined average of 4 cents per kilowatt hour.
SDG&E rates have also increased, although in smaller
increments. High-usage residential customers and the vast
majority of business customers who take bundled service were hit
especially hard. The 2001 rate increases marked the practical
collapse of the rate freeze and transition cost recovery scheme
created by AB 1890 and ended any illusions about deregulation
leading to rate reductions.
While DWR has claimed a significant share of electricity rates
for its ongoing operating costs and payments on bonds it issued
to finance its high-cost power purchases in 2001, the IOUs have
also collected an extra measure of rates that would otherwise be
dedicated to buying electricity. Under the CPUC's 2001 rate
increase decisions, these extra rates were subject to refund to
utility customers.
The IOUs accumulation of excess rates has long since matched
their historic procurement debts, leaving little excuse for
continuing today's high rates. However, the CPUC has, for the
most part, maintained higher rates and expanded their purposes
to include improving the financial health of the IOUs,
subsidizing direct access and distributed generation, and buying
"reliability insurance" in the form of minimum reserve margins.
The 2001 rate increases averaged 40%. According to the CPUC,
SCE rates have been reduced 13% and PG&E rates have been reduced
8% since. As a result, current rates remain 27-32% above
pre-crisis levels. The CPUC has not provided an account of the
use of this revenue or a schedule for achieving further rate
reductions.
COMMENTS
1. Forecast criteria are overly prescriptive and
duplicative of existing California Energy Commission (CEC)
forecasting duties. Pursuant to SB 1389 (Bowen), Chapter
568, Statutes of 2002, the CEC's biennial Integrated Energy
Policy Report includes energy price data collection and
forecasting. In its process, the CEC must consult with the
CPUC. This bill sets out detailed guidelines for
preparation of rate forecasts, but doesn't seem to confer
any authority the CPUC doesn't already have and duplicates
similar duties already assigned to the CEC.
Rather than inviting another forecast, the author and the
committee may wish to consider the following alternative:
a. Establish rate reduction as a clear
legislative priority.
b. Require CPUC to adopt a schedule to eliminate
"excess" rate elements (those which do not reflect the
IOUs' ongoing cost of serving their customers) not
specifically authorized by statute and achieve maximum
feasible rate reductions.
c. Require the CPUC to report to the Legislature
each year its progress in meeting its rate reduction
goals and identify any remaining rate elements which
do not reflect the IOUs' ongoing cost of serving their
customers.
2. Report should be incorporated into CPUC President's
annual report. Rather than create a separate rate
reduction report, the author and the committee may wish to
consider making the reporting requirements of this bill a
mandatory element of the CPUC President's annual report to
the Assembly and Senate policy committees.
ASSEMBLY VOTES
Assembly Floor (73-1)
Assembly Appropriations Committee (18-0)
Assembly Utilities and Commerce Committee
(10-0)
POSITIONS
Sponsor:
The Utility Reform Network
Support:
None on file
Oppose:
Pacific Gas and Electric Company
Sempra Energy
Southern California Edison
Lawrence Lingbloom
AB 67 Analysis
Hearing Date: June 30, 2005