BILL ANALYSIS                                                                                                                                                                                                    

                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 895 (Rendon) - Utility rate refunds: energy crisis  
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          |Version: February 26, 2015      |Policy Vote: E., U., & C. 10 -  |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: July 13, 2015     |Consultant: Marie Liu           |
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          This bill meets the criteria for referral to the Suspense File. 

          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.

           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  

          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  

          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  

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