BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 695| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 695 Author: Kehoe (D) Amended: 5/28/09 Vote: 27 - Urgency SENATE ENERGY, U. & C. COMMITTEE : 11-0, 4/21/09 AYES: Padilla, Benoit, Calderon, Corbett, Cox, Kehoe, Lowenthal, Simitian, Strickland, Wiggins, Wright SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SUBJECT : Electricity rates SOURCE : Author DIGEST : This bill makes several changes to the state's regulation of electricity, including allowing for increases in some residential electricity rates, increasing the ability of retail customers to purchase electricity directly from generators, prohibiting mandatory time-variant pricing, and making changes to existing energy efficiency programs. ANALYSIS : The investors-owned utilities (IOUs) have been concerned about the consequences of the 130 percent of baseline residential rate freeze on bills for large residential electric consumers. The residential consumer representatives have been concerned about the reopening of direct access and the effect on electric prices and reliability. This bill represents an agreement between the CONTINUED SB 695 Page 2 IOUs, the residential consumer representatives, and some of the competitive electric providers. Changes to current law made by SB 695 (Kehoe) Under existing law, the Public Utilities Commission (PUC) has regulatory authority over public utilities, including electrical corporations, as defined. Existing law authorizes the PUC to fix the rates and charges for every public utility, and requires that those rates and charges be just and reasonable. This bill prohibits the PUC from requiring or permitting an electrical corporation to employ mandatory or default time-variant pricing for residential customers prior to January 1, 2016, but authorizes the PUC to authorize an electrical corporation to offer residential customers the option of receiving service pursuant to time-variant pricing and to participate in other demand response programs. The bill requires the PUC to only approve an electrical corporation's use of time-variant pricing for residential customers, beginning January 1, 2016, if those residential customers have the option to not receive service pursuant to time-variant pricing and incur no additional costs as a result of the exercise of that option. Existing law requires the PUC to establish a program of assistance to low-income electric and gas customers, referred to as the California Alternate Rates for Energy or CARE program, and prohibits the cost to be borne solely by any single class of customer. This bill requires the PUC to establish the CARE program to provide assistance to low-income electric and gas customers with annual household incomes at or below 200 percent of the federal poverty guideline levels, and requires that the cost of the program, with respect to electrical corporations, be recovered on an equal cent-per-kilowatthour basis from all classes of customers that were subject to the surcharge that funded the CARE program on January 1, 2008. For a public utility that is both an electrical corporation and a gas corporation, the bill requires that the cost of the program be recovered on SB 695 Page 3 an equal cent-per-kilowatthour or per-therm basis from all classes of customers that were subject to the surcharge that funded the CARE program on January 1, 2008. Existing law relative to electrical restructuring requires that the electrical corporations and gas corporations that participate in the CARE program administer low-income energy efficiency and rate assistance programs described in specified statutes, and undertake certain actions in administering specified energy efficiency and weatherization programs. This bill requires that electrical corporations, in administering the specified energy efficiency and weatherization programs, to target energy efficiency and solar programs to upper-tier and multifamily customers in a manner that will result in long-term permanent reductions in electricity usage by occupant of the dwelling units and develop programs that specifically target rehabilitation and weatherization of existing dwelling units and new construction by, and new and retrofit appliances for, nonprofit affordable housing providers. The bill requires the PUC, by not later than December 31, 2020, to ensure that all eligible low-income electricity and gas customers are given the opportunity to participate in low-income energy efficiency programs, including customers occupying apartment houses or similar multiunit residential structures, and requires the PUC and electrical corporations and gas corporations to expend all reasonable efforts to coordinate ratepayer-funded programs with other energy conservation and efficiency programs and to obtain additional federal funding to support actions undertaken pursuant to this requirement. Existing law relative to electrical restructuring requires the PUC to authorize and facilitate direct transactions between electricity suppliers and retail end-use customers. Existing law requires the PUC to designate a baseline quantity of electricity and gas necessary for a significant portion of the reasonable energy needs of the average residential customer, and requires that electrical and gas corporations file rates and charges, to be approved by the PUC, providing baseline rates and requires the PUC, in SB 695 Page 4 establishing baseline rates, to avoid excessive rate increases for residential customers. Existing law, enacted during the energy crisis of 2000-01, authorized the Department of Water Resources (DWR), until January 1, 2003, to enter into contracts for the purchase of electricity, and to sell electricity to retail end-use customers and, with specified exceptions, local publicly owned electric utilities, at not more than DWR's acquisition costs and to recover those costs through the issuance of bonds to be repaid by ratepayers. That law provides that DWR is entitled to recover certain expenses resulting from its purchases and sales of electricity and authorizes the commission to enter into an agreement with the department relative to cost recovery. That law prohibits the PUC from increasing the electricity charges in effect on February 1, 2001, for residential customers for existing baseline quantities or usage by those customers of up to 130 percent of then existing baseline quantities, until the department has recovered the costs of electricity it procured for electrical corporation retail end-use customers. That law also suspends the right of retail end-use customers, other than community choice aggregators and a qualifying direct transaction customer, to acquire service through a direct transaction until DWR no longer supplies electricity under that law. This bill deletes the prohibition that the PUC not increase the electricity charges in effect on February 1, 2001, for residential customers for existing baseline quantities or usage by those customers of up to 130 percent of then existing baseline quantities. The bill authorizes the PUC to increase the rates charged residential customers for electricity usage up to 130 percent of the baseline quantities by the annual percentage change in the Consumer Price Index from the prior year plus one percent, but not less than three percent, and not more than five percent per year. This authorization will be subject to the limitation that rates charged residential customers for electricity usage up to the baseline quantities, including any customer charge revenues, not exceed 90 percent of the system average rate, as defined. The bill authorizes the PUC to increase the rates for participants in the CARE program, subject to certain limitations. The bill requires the PUC SB 695 Page 5 to authorize direct transactions subject to a phase-in schedule of not less than three years and not more than five years, and subject to total and yearly direct transaction limits established, as specified, for each electrical corporation. The bill continues the suspension of direct transactions except as expressly authorized, until the Legislature, by statute, repeals the suspension or otherwise authorizes direct transactions. Existing law requires the PUC to prepare and submit to the Governor and the Legislature a written report on an annual basis before February 1 of each year on the costs of programs and activities conducted by an electrical corporation or gas corporation that has more than a specified number of customers in California. This bill requires the report to contain the PUC's recommendations for actions that can be undertaken during the upcoming year to limit utility cost increases, consistent with the state's carbon reduction, energy, and environmental goals. The bill requires the PUC to annually require electrical and gas corporations to study and report to the PUC on measures that they recommend be undertaken to limit cost increases.Background The 2000-01 electricity crisis, brought about by the 1996 deregulation of electric markets, elicited a number of legislative responses designed to bring some order to chaotic markets and to protect residential customers from the worst of the rate increases. Responding quickly to the crisis, the Legislature authorized the DWR to purchase electricity on behalf of California's nearly broke utilities, froze residential electric rates for specified quantities of usage, and suspended direct access, the program which permitted customers to purchase electricity from providers other than the utility. This bill revises all three of those legislative actions. Recent History . Much of the content of this bill was negotiated last year and contained in SB 1536 (Kehoe). This bill was never heard in the Assembly. SB 695 Page 6 FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to the Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2009-10 2010-11 2011-12 Fund PUC regulatory costs $105 $210 $210 Special * UC energy savings About $400 in savings per year, General beginning sometime after 2013 CSU energy savings $1,000 to $3,000 per year, beginning General sometime after 2013 *PUC Utilities Reimbursement Account Most of the regulatory costs due to changes to electricity rates and regulations can be accommodated within existing resources at the Public Utilities Commission. However, the Commission estimates that it will require about $210,000 per year for additional workload in the Low Income Energy Efficiency Program to oversee increased energy efficiency program activities. SUPPORT : (Verified 5/29/09) Pacific Gas and Electric Company Sempra Energy Southern California Edison The Utility Reform Network Utility Consumer Action Network DLW:do 5/29/09 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** SB 695 Page 7