BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 895 (Rendon) - Utility rate refunds: energy crisis litigation. ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: February 26, 2015 |Policy Vote: E., U., & C. 10 - | | | 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: July 13, 2015 |Consultant: Marie Liu | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 895 would require that proceeds of any claims arising out of the energy crisis of 2000-02 be deposited into the Ratepayer Relief Fund, subject to appropriation by the Legislature, and would prohibit the California Public Utilities Commission (CPUC) from expending or distributing the proceeds of any claims. Fiscal Impact: Increased revenues, potentially in the billions of dollars, to the Ratepayer Relief Fund (special). Potential costs to the General Fund for litigation costs for the Attorney General (AG) and the Department of Water Resources (DWR) associated with energy crisis. Unknown costs to the state, as a ratepayer, (General Fund and various special funds) to the extent that settlement monies AB 895 (Rendon) Page 1 of ? are not deposited in the Electric Power Fund to repay bonds and long-term power contracts entered into by DWR Potential impacts to settlement amounts. Background: In the latter half of the 1990s, the state restructured its electricity markets to provide more competition. These efforts were codified in AB 1890 (Brulte, Chapter 854, Statutes of 1996). Soon thereafter, in 2000 and 2001, the state experienced extraordinary wholesale electricity prices in what has become known as the California electricity crisis. Pacific Gas and Electric declared bankruptcy; Southern California Edison nearly did so. Subsequent investigation revealed numerous instances of illegal market manipulation on the part of electricity suppliers. The state - through the CPUC and the now-defunct Energy Oversight Board and, subsequently, the Attorney General - has been party to litigation related to the energy crisis. Ligation is continuing, and given a recent US Supreme Court ruling that found that energy companies can be sued under state antitrust laws for illegally manipulating natural gas prices during the energy crisis. This ruling may result in several more years of litigation, and potentially millions, if not billions, in additional settlement monies to the state and ratepayers. The state has received approximately $5.3 billion in settlements to date. Existing law requires that any energy settlement agreement entered into by the AG, after reimbursing the AG's litigation and investigation expenses, shall direct settlement funds according to the following priority: (1) to reduce ratepayer costs of those utility ratepayers harmed by the actions of the settling parties, including through the reduction of rates or the reduction of ratepayer debt obligations incurred as a result of the energy crisis, and (2) deposit into the Ratepayer Relief Fund. (GOV §16428.3) Existing law also requires that all funds recovered on behalf of DWR, after deduction of litigation and investigation expenses, shall be deposited in the Electric Power Fund, which is used to pay down bonds issued for DWR to procure electricity during the crisis and to pay down long-term contracts. (GOV §16428.4) AB 895 (Rendon) Page 2 of ? The purpose of the Ratepayer Relief Fund, established in GOV §16428.15, is to benefit electricity and natural gas ratepayers and to fund investigation and litigation costs of the state in the pursuing allegations of overcharges. Section 16428.5 of the Government Code requires that the fund be expended, upon appropriation by the Legislature, for the following purposes: (1) to repay or finance litigation and investigation expenses, (2) to reduce ratepayer costs of those ratepayers harmed, and (3) To reduce or pay debt service on bonds. The Ratepayer Relief Fund may be used by the controller for loans to the General Fund, repayable with interest. Proposed Law: This bill would prohibit the CPUC from distributing or expending the proceeds of any claims in any litigation or settlement related to the 2000-02 energy crisis and would require all proceeds to be deposited into the Ratepayer Relief Fund. Staff Comments: This bill is drafted in the Public Utilities Code and does not reference Article 9.5 of Chapter 2, Part 2, Division 4, Title 2 of the Government Code (commencing with §16428.1) other than to identify the Ratepayer Relief Fund. As such, it is unclear whether the requirement in this bill for all claims to be deposited into the Ratepayer Relief Fund would allow the AG and DWR to first recover their litigation costs, as is currently provided in the Government Code. Because one of the purposes of the Ratepayer Relief Fund is to reimburse the state's litigation costs, the Legislature could appropriate funds for this purpose, but the Legislature would not be bound to do. In contrast, existing law allows the recovery of litigation costs without legislative action. Should this bill result in litigation costs not being repaid to AG or DWR, this bill would result in costs to those agencies. Similarly, while past settlements have almost all been directed as refunds to ratepayers or to pay down bonds or long-term contracts via the Electric Power Fund, the Legislature would not AB 895 (Rendon) Page 3 of ? be bond to continue this practice as statute cannot bind future Legislatures. Because the bonds and long-term contracts must be paid by the ratepayers, to the extent that future Legislatures do not appropriate Ratepayer Relief Funds to the electric Power Fund, there would be costs to the state as a ratepayer of electricity and natural gas. Past settlements have been constructed differently depending on the case. The claimants of cases involving short-term settlements have been the large IOUs, DWR, and the AG. In these cases, the CPUC directs the IOUs on how to return proceeds to the ratepayers. DWR's proceeds go to the Electric Power Fund and AG proceeds pay litigation costs. In cases involving long-term contracts, the CPUC and the AG are the claimants, with the settlement proceeds going to the CPUC after AG's litigation costs are recovered. The CPUC has sent the proceeds to the Electric Power Fund, with one exception- a case against the subsidiaries of Dynergy Inc. In the Dynergy settlement, the CPUC entered into a settlement that allowed in-kind payments to fund installation of electric vehicle charging infrastructure. This bill is unclear as to which settlement proceeds would be affected- only the CPUC awards (as the bill is written in the PUC Code), state awards, or all awards including the awards to IOUs. Staff recommends that the bill's intent be clarified, noting that the state may not be able to require the proceeds awarded to the IOUs to be deposited into the Ratepayer Relief Fund without creating a takings. This bill would put spending of the settlement proceeds in the hands of the Legislature. As mentioned above, while there is statutory direction on how the Ratepayer Relief Fund must be spent, statute cannot bind future Legislatures. Therefore there is the possibility that the fund could be spent in ways that may affect future settlements. That is, in determining settlement amounts and divisions, the courts are likely to consider how past settlements have been used. The ultimate impacts of this bill on future settlements, however, are speculative. AB 895 (Rendon) Page 4 of ? -- END --