BILL ANALYSIS
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THIRD READING
Bill No: AB 67
Author: Levine (D)
Amended: 9/1/05 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 the Legislature:
fuel cell
customer-generators
SOURCE : The Utility Reform Network
DIGEST : This bill requires the President of the
California Public Utilities Commission to annually appear
before the Legislature to report on the costs of programs
and activities conducted by an electrical or gas
corporation, as specified. The bill also extends the 2006
sunset on the fuel cell net metering program to 2010.
Senate Floor Amendments of 9/1/05 add the provisions
extending the sunset on the fuel cell net metering program.
CONTINUED
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Senate Floor Amendments of 8/24/05 (1) exempt small
electric and gas utilities so that the California Public
Utilities Commission would be required to report only on
the rates of large utilities (i.e., Pacific Gas and
Electric, Southern California Edison, San Diego Gas and
Electric, and Southern California Gas), and (2) make
technical, clarifying changes to the intent language and
operative reporting provisions of the bill.
ANALYSIS :
Public Utility Rates . 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 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.
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 electrical corporations with at least one million retail
customers in California and gas corporations with at least
500,000 retail customers in California. The report will be
required to include the following:
1.Each statutorily mandated program and its annual costs to
ratepayer.
2.Each program mandated by the PUC and its annual cost to
ratepayers.
3.The cost of long-term energy 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, as
determined by the PUC.
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Fuel Cell Net Metering Program . Existing law:
1.Requires investor-owned utilities (IOUs), municipal
utilities or any other entity offering retail electric
service, to credit all electricity generated by a
customer-owned solar or wind system up to one megawatt
(MW) in size against the customer's usage of electricity,
a procedure known as "net metering."
2.Provides partial net metering to customer-owned fuel cell
electric generation facilities. The net metered customer
only gets credit at the generation rate, rather than the
full retail rate offered to solar generation. The
program sunsets January 1, 2006. (AB 1214 (Firebaugh),
Chapter 661, Statutes of 2003)
This bill extends the fuel cell net metering program by
replacing the sunset with a provision permitting a fuel
cell facility commencing operation before January 1, 2010
to be eligible for net metering for the life of the
facility.
Background - Fuel Cell Net Metering Program
SB 656 (Alquist), Chapter 369, Statutes of 1995, required
all electric utilities to buy back any electricity
generated by a customer-owned solar or wind system. This
buy-back program is known as "net metering" because the
electricity purchases of the customer are netted against
the electricity generated by the customer's own solar or
wind electric system. The generated electricity spins the
meter backward, making it financially equivalent to using
less electricity for the customer.
Net metering has also been extended partially to larger
solar facilities and to non-solar renewable facilities by
giving credit at the utility's generation rate (akin to a
wholesale rate, rather than full retail rate) for
electricity produced. in 2003, AB 1214 (Firebaugh),
Chapter 661, Statutes of 2003, created a program providing
partial net metering to customer-owned fuel cell electric
generation projects. Under AB 1214, the net-metered
customer only gets credit at the generation rate, rather
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than the full retail rate offered to solar customers. AB
1214 sunsets January 1, 2006.
Background - Rates
Since early 2001, the electricity rates set by the PUC for
customers of the state's major 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
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
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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.
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.
The PUC opposes this bill. They argue the bill does not
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adequately reconcile its goal of keeping rates as low as
possible, and the PUC's efforts on lowering rates, with the
Legislature's key role in developing new programs and
policies that impact rates. They also have concerns that
the new reporting requirements imposed by the bill are
vague and, therefore, difficult to comply with.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/25/05)
The Utility Reform Network (source)
OPPOSITION : (Verified 8/26/05)
Pacific Gas and Electric Company
Public Utilities Commission
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,
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 9/2/05 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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