BILL ANALYSIS AB 380 Page 1 Date of Hearing: May 11, 2005 ASSEMBLY COMMITTEE ON APPROPRIATIONS Judy Chu, Chair AB 380 (Nunez) - As Amended: May 2, 2005 Policy Committee: UtilitiesVote:11-0 Urgency: No State Mandated Local Program: Yes Reimbursable: No SUMMARY This bill requires the Public Utilities Commission (PUC) to establish and enforce requirements ensuring that all electricity providers have adequate generating capacity to meet peek demand and operating reserves at just and reasonable rates. Specifically, this bill: 1)Requires the PUC, in consultation with the Independent System Operator (ISO), to establish the resource adequacy requirements for all load-serving entities (LSEs). 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 the renewables portfolio standard. 3)Requires the PUC to require LSEs to report to the commission such information as needed to enable the PUC to determine compliance with the adopted resource adequacy requirements. 4)Requires the California Energy Commission (CEC) to use the information reported to the PUC pursuant to (4) in its biennial integrated policy report. AB 380 Page 2 5)Requires the PUC to implement and enforce the resource adequacy requirements on all LSEs. 6)Requires the PUC to ensure that costs incurred on behalf of an investor-owned utility's (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. 7)Requires every local publicly owned electric utility (muni) to ensure adequate generating resources to meet peak demand to ensure local area reliability, and to report to the CEC information required relative to the utility's resource plan. 8)Requires the PUC to impose penalties on any LSEs that fail to procure adequate generating resources in accordance with PUC's order implementing the above requirements. FISCAL EFFECT Absorbable costs to the PUC and the CEC. The PUC indicates that it is already engaged in much of what the bill would require. COMMENTS Background and Purpose . LSEs include all retail electricity providers-IOUs, electric service providers (ESPs), CCAs, and munis. The IOUs are currently required to procure 115 to 117 percent of projected peak demand to ensure they have adequate resources to meet the demand of their customer base. The IOU customers pay for the reserve requirements through their rates. According to the PUC, the commission is in the process of developing resource adequacy rules, applicable to both utilities and ESPs, to ensure that each retail electric service provider has sufficient resources available to ensure reliable service under adverse conditions. AB 380 Page 3 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 by which it can verify whether the ESPs are actually procuring sufficient electricity and needed reserves. 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 reliability risk for IOU customers because the 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. According to the author, this bill will 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 the IOUs. Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081