BILL ANALYSIS
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THIRD READING
Bill No: AB 67
Author: Levine (D)
Amended: 7/14/05 in Senate
Vote: 21
SEN. ENERGY, UTIL. AND COMM. COMMITTEE : 10-0, 6/30/05
AYES: Escutia, Morrow, Alarcon, Battin, Bowen, Cox, Dunn,
Kehoe, Murray, Simitian
NO VOTE RECORDED: Campbell
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 73-1, 5/27/05 - See last page for vote
SUBJECT : Energy: rates: report to Legislature
SOURCE : The Utility Reform Network
DIGEST : This bill requires the President of the Public
Utilities Commission to annually appear before the
Legislature to report on the costs of programs and
activities conducted by electrical and gas corporations, as
specified.
ANALYSIS : Existing law (1) requires all charges demanded
or received by any public utility for any product or
commodity shall be just and reasonable, and (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 Public
CONTINUED
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Utilities Commission (PUC) and a finding by the PUC that
the new rate is justified.
This bill includes a statement of legislative intent that
the PUC reduce electricity and natural gas rates to the
lowest amount possible while maintaining adequate service.
This bill requires the President of the PUC to appear
annually before the Senate and Assembly policy committees
to report on the costs of programs and activities conducted
by each electrical and gas corporation. The report will be
required to include the following:
1.Each statutorily mandated program or activity and its
annual costs to ratepayer.
2.Each program or activity mandated by the PUC and its
annual cost to ratepayers.
3.The cost of long-term electricity purchase contracts and
revenue bonds issued during the electricity crisis and
administered by the Department of Water Resources.
4.All other costs currently recovered in retail sales.
Background
Since early 2001, the electricity rates set by the PUC 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 percent 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
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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 electricity, and the state had to
assume the IOUs' power buying duties to "keep the lights
on."
To avoid the dysfunctional spot market financially
decimated the IOUs and threatened catastrophic rate
increases, AB 1X (Keeley), Chapter 4, Statutes of 2001,
First Extraordinary Session, 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 PUC raised electric rates to pay for
the high-cost power. In 2001, the PUC increased rates for
the customers of Southern California Edison (SCE) and
Pacific Gas & Electric (PG&E) a combined average of four
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.
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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 PUC'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 PUC
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 percent. According to the PUC, SCE
rates have been reduced 13 percent and PG&E rates have been
reduced eight percent. As a result, current rates remain
27-32 percent above pre-crisis levels. The PUC has not
provided an account of the use of this revenue or a
schedule for achieving further rate reductions.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/17/05)
The Utility Reform Network (source)
OPPOSITION : (Verified 8/17/05)
Pacific Gas and Electric Company
ASSEMBLY FLOOR :
AYES: Aghazarian, Baca, Bass, Benoit, Berg, Bermudez,
Blakeslee, Bogh, Calderon, Canciamilla, Chan, Chavez,
Chu, Cogdill, Cohn, Coto, Daucher, De La Torre, DeVore,
Dymally, Emmerson, Evans, Frommer, Garcia, Goldberg,
Harman, Jerome Horton, Shirley Horton, Houston, Huff,
Jones, Karnette, Keene, Klehs, Koretz, La Malfa, La Suer,
Laird, Leno, Leslie, Levine, Lieber, Liu, Matthews, Maze,
McCarthy, Montanez, Mountjoy, Mullin, Nakanishi, Nation,
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Nava, Negrete McLeod, Niello, Parra, Pavley, Plescia,
Richman, Sharon Runner, Ruskin, Saldana, Salinas,
Spitzer, Strickland, Torrico, Tran, Umberg, Villines,
Walters, Wolk, Wyland, Yee, Nunez
NOES: Arambula
NO VOTE RECORDED: Gordon, Hancock, Haynes, Oropeza,
Ridley-Thomas, Vargas
NC:cm 8/17/05 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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