BILL ANALYSIS
AB 380
Page 1
Date of Hearing: April 18, 2005
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
AB 380 (Nu?ez) - As Amended: April 12, 2005
SUBJECT : Electricity: electrical restructuring: resource
adequacy.
SUMMARY : Requires the California Public Utilities Commission
(PUC) in consultation with the California Independent System
Operator (ISO) to establish resource adequacy requirements and
requires the PUC to implement and enforce the resource adequacy
requirements on all electricity providers, or load-serving
entities (LSEs). Specifically, this bill :
1)Requires the PUC, in consultation with the ISO, to establish
resource adequacy requirements to ensure that adequate
physical generating capacity dedicated to serving all load
requirements is available to meet peak demand and planning and
operating reserves at just and reasonable rates.
2)Requires all LSEs, including nonutility electric service
providers and community choice aggregators (CCAs), to be
subject to the same requirements as the requirements for
investor-owned utilities (IOUs), including resource adequacy,
resource diversity, cost-effective energy efficiency, and
renewables portfolio standard.
3)Requires the resource adequacy mechanism to be designed to
minimize enforcement requirements and costs and to prevent
shifting of costs between utility service areas and between
customer classes within LSEs under the ratesetting authority
of the PUC.
4)Requires the PUC, in consultation with the ISO, to implement
and enforce the resource adequacy requirements on all LSEs.
5)Requires the PUC to ensure that costs incurred on behalf of an
IOU's customers are recovered in a non-bypassable manner from
the customers on whose behalf they were incurred and to
develop a mechanism to ensure no shifting of costs.
6)Requires every local publicly owned electric utility (muni) to
ensure adequate generating resources to meet peak demand to
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ensure local area reliability, and to report to the California
Energy Commission (CEC) information required relative to the
utility's resource plan.
EXISTING LAW :
1)The California Constitution requires the Legislature to
control all public utilities, including all private
corporations and persons that own, operate, or control aspects
of providing power to the public. In addition, the Legislature
may confer additional jurisdiction upon the PUC.
2)The California Constitution requires the PUC to fix rates and
establish rules for all public utilities subject to its
jurisdiction.
3)The Public Utilities Code requires the PUC to review and adopt
a procurement plan and a renewable energy procurement plan for
each IOU. The Public Utilities Code also authorizes
electrical service to be provided, in certain circumstances,
by electric service providers (ESPs) and CCAs.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, this bill would require the
PUC to ensure that non-utility energy service providers and CCAs
are subject to the same resource adequacy, resource diversity,
cost-effective energy efficiency, and renewable portfolio
standard requirements as are California's electrical
corporations.
1) Why resource adequacy requirements are important to all LSEs :
LSEs include all retail electricity providers, which includes
IOUs, ESPs, CCAs, and munis. If the ESPs do not adequately
provide for the demands of its customers, the customers of the
IOU end up paying more for electricity. The IOUs are currently
required to procure 115 to 117 percent of projected demand to
ensure they have adequate resources to meet demand of their
customer base. The IOU customers pay for the reserve in their
rates. It is unknown whether ESPs, which provide electricity for
about 15 percent of demand as direct-access customers, and munis
procure resources to meet demand in extenuating circumstances.
According to the PUC, the commission is in the process of
developing resource adequacy rules, applicable to both utilities
and ESPs, in R.04-04-003. The purpose of these rules is to
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ensure that each retail electric service provider has sufficient
resources available to ensure reliable service under adverse
conditions. There have been concerns that the IOUs have been
asked to procure reserves not only on their own behalf but also
on the behalf of direct access customers because the PUC does
not have a process in place where it can verify whether the ESPs
are actually procuring sufficient electricity and needed
reserves.
This raises a number of concerns. To the extent IOUs buy
reserves on behalf of direct-access customers, costs are shifted
from the direct-access customers to the IOU customers. Even if
there are no cost shifts, there may be a risk of reliability for
the IOU customers not because the IOUs do not have power, but
because ESPs have not purchased power. If the ESP has failed to
procure enough resources, the customer continues to draw
electricity from the IOU's reserves, which compromises
reliability for the IOU's customers, or increases costs across
all of its customers if the IOU has to purchase additional
resources on the spot market for these unanticipated customers.
This bill specifically requires the resource adequacy
requirements prevent cost shifting between utility service areas
and between customer classes within LSEs under the ratesetting
authority of the PUC. It is unclear why the parameters exist
that may permit cost shifts in certain circumstances, for
example, where one or both of the entities may not be under the
ratesetting authority of the PUC. The author and committee may
wish to eliminate the parameters of "between utility service
areas and between customer classes" and provide that the PUC
ensure no shifting of costs at all, regardless of whom it's
between or what entity sets the rates.
2) Does the PUC have authority to implement and enforce the
requirements on all LSEs : There is debate about whether the PUC
has the jurisdiction to implement and enforce resource adequacy
requirements over all LSEs. Recent PUC decisions have confirmed
its duty to protect customers by ensuring that ESPs meet their
contractual obligations. This bill would codify the PUC's
jurisdiction over ESPs and may likely eliminate any legal
uncertainty over the PUC's authority to set resource adequacy
standards. Although the bill may establish the authority, the
PUC is unsure about how it could implement and enforce the
standards. The PUC has suggested that it could implement the
standards by requiring the ESPs to submit long-term procurement
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plans to the PUC for approval. It is debatable whether the PUC
has clear authority to hold the ESPs and CCAs accountable if the
procurement plans fail to meet the standards, or impose punitive
damages if the ESPs fail to adequately provide for their
customers. The author and committee may wish to require the PUC
to develop enforcement standards stringent enough to impose a
financial deterrent or economic disincentive to encourage
compliance with the resource adequacy standards.
3) Are all LSEs created equal : This bill appropriately exempts
the State Water Project (SWP), qualifying facilities (QFs), and
a customer whose facility is not physically interconnected to
the transmission grid. Although resources adequacy standards are
actually enforcing the LSEs' contractual obligations, the other
standards may not be applicable, or may be difficult to impose
on the exempt entities. The SWP generates energy primarily to
run its facilities and may or may not generate surplus depending
on the time of year. Many QFs are cogeneration plants that
primarily produce energy to meet the plant's own electric energy
demand. If excess energy is produced, it may be sold to a
utility. In the late 1970s cogeneration plants were encouraged
to more efficiently use energy and to increase supply of energy
during a shortage. Cogeneration plants use a combustion turbine
and reuse the resulting hot exhaust gases to create steam for an
industrial process. Existing and potential cogenerators include
industries that produce or require large quantities of thermal
energy, such as food processing, oil refining, and oil
production. Other cogeneration industries produce biomass waste
by-products such as orchard, lumber, and agricultural residues
that can be used as fuel to produce thermal energy. Cogeneration
facilities pay a stand-by service charge from the IOU.
4) A United Front : Because the bill would require the PUC to
develop and enforce resource adequacy standards, and the munis
to report resource adequacy compliance to the CEC, the author
and committee may wish to require the PUC to provide the
resource adequacy information to the CEC, and the CEC to include
all resource adequacy information in its biennial Integrated
Energy Policy Report .
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
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(AFSCME)
Coalition of California Utility Employees (CUE)
Sempra Energy (if amended)
Southern California Edison
The Utility Reform Network (TURN
Opposition
Western States Petroleum Association
Analysis Prepared by : Gina Mandy / U. & C. / (916) 319-2083