BILL ANALYSIS
AB 1002
Page 1
Date of Hearing: April 19, 1999
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick Wright, Chair
AB 1002 (Wright) - As Amended: April 14, 1999
SUBJECT : Natural gas: consumption charge.
SUMMARY : This bill imposes a surcharge on all natural gas
consumed in California to fund specified low-income, energy
efficiency, conservation and public interest research programs.
Specifically, this bill :
1)Requires the California Public Utilities Commission (CPUC) to
impose a surcharge on all natural gas consumed in the state.
2)Defines a gas utility to mean any public utility gas
corporation or interstate pipeline.
3)Requires all gas utilities to collect the surcharge from
natural gas consumers in addition to any other charges for
natural gas sold and transported for consumption.
4)Exempts specified natural gas usage from the consumption
surcharge, including natural gas utilized:
To generate power for sale;
For resale to end users;
For enhanced oil recovery;
In cogeneration technology projects to produce
electricity;
Pursuant to contracts previously approved by CPUC which
do not currently impose the surcharge; and,
Within the service territory of a municipality that
provides similar programs.
5) Requires CPUC to establish the surcharge rate for each
class of customer and notify the State Board of Equalization
(BOE) of the surcharge.
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6) Requires each public utility gas corporation and each
interstate pipeline company to notify BOE that they provide
natural gas for consumption.
7) Requires BOE to notify each non utility gas provider of
the surcharge to apply to each customer class.
8) Requires that revenues collected from the surcharge be
paid to BOE and deposited into the Gas Consumption Surcharge
Fund to be created in the State Treasury.
9) Authorizes BOE to collect monies and use fee collection
procedures.
10)Appropriates the revenues collected from the surcharge to
CPUC or an entity designated by CPUC to fund the low-income,
and direct assistance programs.
11)Appropriates to the California Board for Energy Efficiency
(CBEE) or an entity designated by CPUC to fund the energy
efficiency and public interest research and development
programs.
12)Appropriates funds to pay CPUC and BOE for their costs
associated with the administration of these programs.
13)Establishes an advisory board to administer programs and
conduct financial and compliance audits.
14)Authorizes CPUC to allow the public utility gas corporation
to provide service to customers who partially or fully bypass
the system at competitive market-based rates.
EXISTING LAW establishes certain public purpose programs,
including energy efficiency, public interest research and
development, low-income assistance and weatherization.
Authorizes to fund those public purpose programs in the rattes
of public utility gas corporations.
FISCAL EFFECT : BOE indicates that they would incur substantial
costs to develop and administer the surcharge. BOE is currently
developing a detailed cost estimate which would include costs
for registering surcharge payers, developing computer programs,
mailing and processing returns and surcharge payments,
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conducting audits, developing regulations, training staff and
answering inquiries from the public. Costs incurred by BOE and
CPUC would be funded out of the Gas Consumption Surcharge.
COMMENTS :
1) The sponsor of this bill, Sempra Energy, has introduced
this bill to establish a surcharge on all natural gas
customers to ensure the financial stability of California's
public purpose programs. Program costs are spread over core
(residential and small commercial) and non-core (large,
industrial users) customers. The four public purpose programs
are:
California Alternate Rates for Energy Program (CARE)
that provides rate assistance to low-income customers.
Low-Income Direct Assistance Program (DAP) to finance
weatherization of low-income housing.
Energy Efficiency Program (DSM) to reduce energy demand
through the promotion of cost-effective energy conservation
and efficiency measures.
Research, Demonstration and Development Program (RD&D)
to support technology research that would reduce energy
production and end-use costs.
2)In recent years, federal deregulation of the gas industry has
enabled interstate pipelines regulated by the Federal Energy
Regulatory Commission (FERC) to compete with CPUC-regulated
intrastate pipelines. This competition has caused a
significant exodus of large, non-core customers from
intrastate pipelines, and resulted in the reduction of the
funding base for California's public purpose programs. When
non-core customers abandon the public utility gas
corporation's pipeline, their contributions to the public
purpose programs are shifted and reallocated amongst core
customers remaining on the system. This bill is intended to
level the playing field and require all customers to share in
funding California's public purpose programs which benefit
core utility customers.
3)Based on the 1998 budgeted costs for the public purpose
programs, core customers are currently paid approximately 85%
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of the overall program costs and non-core funded the remaining
15%. This bill proposes that there be no cost shifting
between core and non-core customers. This bill further
contains exemptions for entities that have already been
exempted from the surcharge, such as gas used for enhanced oil
recovery, cogeneration, for resale to end users and for those
contracts which have been approved by CPUC which specifically
did not include the surcharge. Exemptions have been created
for numerous valid reasons, including the following: gas used
for enhanced oil recovery has environmental benefits;
electricity produced for cogeneration will incur a public
purpose surcharge on the electrons generated for use; and, the
surcharge is paid by the public utility gas corporation for
gas sold pursuant to CPUC-approved contracts.
4)This bill also proposes a change in the manner in which the
public purpose programs are administered. At present, the
utility companies administer the programs. As a result
customers are offered varying benefits under the programs
depending upon how the program is administered. The
differences impact program costs, participation levels and
overall program funding. This bill proposes that program
administration be transferred to an advisory board comprised
of representative of the public utility gas corporations,
interstate pipelines, Office of Ratepayer Advocates (ORA),
CPUC Energy Division, community based and consumer groups.
The advisory board would be required to establish a uniform
statewide program and also be authorized to conduct financial
and program audits of the public purpose programs.
5)The surcharge collection mechanism is proposed to be with BOE.
BOE indicates that this bill contains the necessary
administrative provisions to enable it to impose penalty and
interest on end users who fail to report and pay the
surcharge. BOE also states that the Fee Collection Procedures
Law, [Part 30 (commencing with Section 55001) of Division 2 of
the Revenue and Taxation Code] "grants BOE authority to
require each non-core customer to pay the surcharge directly
in the event federal law restricts the board from collecting
the surcharge directly from interstate pipeline suppliers."
This provision of the Fee Collection law is critical in that
some of the pipelines have indicated that they are unable to
ascertain from their daily nomination logs the identity of the
end user when gas is sold by marketers to various end users.
Gas is sold over interstate pipelines pursuant to rules
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prescribed by Gas Industry Standards Board (GISB) which do not
require marketers to disclose customers' names. The Fee
Collection Procedures law can be utilized to ensure that end
users of the interstate pipelines pay the surcharge required
by this bill.
6)A corollary problem has been revealed to the author while
addressing the public purpose surcharge, the residual load
service (RLS) tariff. The residual load service tariff, which
was approved by CPUC in 1995, imposes a higher rate on any
customer which partially bypasses the public utility gas
corporation and continues to use the gas corporation for its
high cost peak load volumes. CPUC authorized the tariff
because the cost of providing occasional peaking service, as
opposed to consistent volume baseload service, is more costly
for the pipeline to provide. CPUC specifically stated that
"our intention is to provide the local distribution
companies (LDC's) the necessary tools to engage in a
more competitive market with the objective of
preventing uneconomic bypass by conveying efficient
price signals to consumers. We apply this load
specific flexible rate design to prospective partial
bypass customers at this time. A customer that
decides not to bypass does so because it is not in its
economic interest. Customers who choose to partially
bypass will do so because they believe themselves
better off than as full-requirements customer of the
utility." Application of Southern California for
Authority to Implement Peaking Rate Service Rates ,
1995 WL 493336 (Cal. P.U.C.).
7)Opponents of the RLS tariff believe the tariff should be
eliminated and replaced with a standby rate that is based on
the actual cost of providing peaking service to non-core
customers. The author recognizes that the RLS tariff in its
current form discourages customers from taking a portion of
their gas from another pipeline. While that was CPUC's
intention, the author has indicated that it is his belief that
the RLS should be modified and has been working with the gas
corporation and the interstate pipelines to establish a
different model which would a) continue to meet CPUC goal of
discouraging uneconomic bypass, b) compensate the public
utility gas corporation for providing standby service and c)
provide reasonable standby rates for the fully and partially
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bypassing customer. The author should make every effort to
address the problems created by the RLS tariff because
customers proposing to utilize competitor pipelines have
suggested that "failure to reform the RLS tariff prevents
competing pipelines from entering the market."
REGISTERED SUPPORT / OPPOSITION :
Support
California Utility Employees
California Municipal Utilities Association
Sempra Energy
Southern California Gas Workers Council
Opposition
None on file.
Analysis Prepared by : Carolyn Veal-Hunter / U. & C. / (916)
319-2083