BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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                                 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  
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          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  







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          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  







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          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  







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          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.








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           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

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