BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 1002 - Wright Hearing
Date: July 13, 1999 A
As Amended: July 8, 1999 FISCAL B
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DESCRIPTION
Current law establishes several natural gas public purpose
programs, including a low-income rate assistance program, a
research and development program, and two energy efficiency
programs. These programs are funded via a surcharge on
natural gas bills of customers of pipelines regulated by
the California Public Utilities Commission (CPUC). Those
who use gas transported by interstate pipeline are exempt
from having to pay the surcharge.
This bill extends the surcharge to customers of interstate
pipelines and codifies specified exemptions to the
surcharge.
This bill allocates any increase in cost of the low-income
rate assistance program above the 1998 level by requiring
residential and small commercial customers to shoulder 85%
of the burden, leaving large commercial and industrial
customers to bear 15% of the burden.
Existing regulation establishes a natural gas tariff
specific to the Southern California Gas Company (SoCal).
This tariff sets the price of natural gas transportation in
cases where a large natural gas customer receives service,
in whole or in part, from a competitor to SoCal.
This bill rewrites that tariff in a way that significantly
lowers that transportation price, which will in turn lower
the price paid by the customer for natural gas purchased
from a SoCal competitor.
KEY QUESTIONS
1.Should a surcharge be applied to natural gas transported
by interstate pipelines to mirror the charge that applies
to natural gas transported by intrastate pipelines?
2.Should responsibility for the public purpose programs
funded by the surcharge be shifted from a 63%-37%
proportional split between residential/small commercial
consumers and large commercial/industrial consumers to
one that's 85%-15% -- and should that split be codified?
3.Should the regulation exempting certain natural gas
customers from the surcharge be codified?
4.Should the Legislature intervene in a regulatory battle
before the CPUC over the appropriateness and cost of the
Residual Load Service tariff?
BACKGROUND
Competition, Technology, & The Bypassable Surcharge . This
bill stems in part from the increase in competition between
natural gas service providers - which has been open to
competitors since the 1980's - and the differences between
state and federal regulation of the entities providing that
service.
Competition for the transportation of natural gas is
between CPUC-regulated intrastate pipelines and Federal
Energy Regulatory Commission (FERC)-regulated interstate
pipelines. Federal law precludes California from imposing
any charges on FERC-regulated pipelines. Therefore,
customers of those pipelines don't have to pay the public
purpose program charges, which can run up to about 20% of
the transportation charge that intrastate pipeline
customers pay.
This discrepancy creates a clear incentive for customers to
leave, or bypass, the intrastate pipeline in favor of an
interstate pipeline. When customers bypass the cost of the
public purpose programs for an interstate pipeline, the
customers remaining on the intrastate pipelines see their
costs go up to fund the public purpose programs at the same
level.
This bill attempts to eliminate the financial incentive for
a customer to leave an intrastate pipeline in favor of an
interstate pipeline by subjecting customers of the
FERC-regulated pipelines to the same charges as customers
of intrastate pipelines, thereby creating a - dare we say -
level playing field.
Public Purpose Programs . Most, but not all, of the public
purpose programs funded by the natural gas surcharge have
specific budgets. However, the low income rate assistance
program, known as CARE, serves all eligible customers and
its budget fluctuates year to year based on demand, not on
funding. If the current efforts to increase participation
in the program by those who are eligible to receive
assistance are successful, CARE program costs will
naturally rise.
While this bill doesn't limit or cap those cost increases,
it does specify who will be responsible for paying for
those increases by allocating any costs above the 1998
levels on a proportion of 85% to residential and small
commercial customers and 15% to large commercial and
industrial customers. Currently, residential and small
commercial customers pay 63% of the costs compared to 37%
for large commercial and industrial customers on a
statewide basis.
Exemptions . Current regulation exempts the following
natural gas uses from the public purpose program
surcharges: gas used to generate power for sale, gas
purchased for the purpose of being resold, sale or use of
gas for enhanced oil recovery, and gas used in cogeneration
projects to produce electricity. This bill codifies those
exemptions.
Residual Load Service . SoCal is the only California
utility to have a specific tariff designed to deal with
large customers who bypass SoCal's gas transportation
service. Arco has complained that this Residual Load
Service tariff (RLS) is punitive and makes it financially
impossible for Arco to bypass the SoCal gas transportation
system.
Under the RLS, if a large customer such as Arco were to
leave the SoCal system entirely, RLS charges would not
apply. However, if a customer simply reduces its reliance
on the SoCal system in part, the RLS charges do apply,
which make it financially unattractive to go with the
alternate competitive natural gas pipeline.
The issue of the tariff is currently before the CPUC and
this bill seeks to intervene in that battle and statutorily
set the RLS tariff at a lower level.
COMMENTS
1.Turning Bypassable Into Non-Bypassable . This bill makes
the natural gas public purpose program surcharge
non-bypassable, removing it as a financial incentive for
a natural gas customer to switch from an intrastate
supplier to an interstate supplier. By making the
surcharge non-bypassable, you ensure adequate funding for
the public purpose programs and a fairer distribution of
the burden. The concept of a non-bypassable surcharge
certainly isn't new - they are the rule of thumb in
telecommunications policy.
2.If We Make It Non-Bypassable, Who Should Pay? This bill
attempts to protect large customers - who are most likely
to switch from intrastate to interstate natural gas
pipelines - from any increased public purpose program
costs by shifting a disproportionately greater share of
cost increases to residential and small commercial
customers.
Unlike all other utility public purpose programs, the
cost shift proposed by this bill codifies an allocation
that moves a higher percentage of the costs to
residential and small commercial customers. Furthermore,
unlike electric and telecommunications public purpose
programs that impose an identical surcharge across all
customer classes, this bill statutorily establishes a
higher surcharge for smaller customers than larger ones.
Arguably, this portion of the bill makes an already
unlevel playing field even more unlevel by increasing the
residential and small commercial customers responsibility
for public purpose program funding from 63% to 85%.
This bill establishes two new precedents: It sets a cost
allocation in statute and it establishes different
allocations between customer classes. Setting a cost
allocation in statute is problematic because the 85%/15%
split is admittedly arbitrary and it eliminates any
flexibility for change that may be needed as a result of
changed circumstances. Establishing different cost
allocations between customers classes is also problematic
because it opens the door for this type of battle with
regard to all utility public purpose programs. While in
this case additional costs are shifted to residential and
small commercial customers, future battles may result in
additional costs being shifted to larger customers.
Rather than establish these precedents, the author and
Committee may wish to consider deleting this portion of
the bill.
3. The RLS Tariff & The CPUC . The RLS charge is a classic
example of the kind of dispute which arises when
previously closed markets are opened to competition. In
this case, the incumbent utility (SoCal) established a
tariff to help it retain customers by ensuring that any
customer attempting to leave would have to continue to
pay for SoCal's "stranded costs." Naturally, competitors
attempting to lure customers away from SoCal complained
that such a tariff thwarts competition, which leaves
policy-makers and/or regulators left to sort out the
mess.
The complexity of the tariff makes it impossible to judge
its merit without a great deal more analysis, however it
appears that changing the RLS charge as this bill
proposes will shift costs to all other customers. It
should be noted that the CPUC is currently considering
the RLS tariff in an ongoing proceeding and it has the
option of sustaining, suspending, or modifying the
tariff. Rather than attempt to rewrite and lower an
arcane, complex tariff in statute that deals with a
single utility, the author and Committee may wish to
consider letting the regulatory agency conclude its
process and make its judgement before jumping into the
mix.
ASSEMBLY VOTES
Assembly U & C Committee (11-0)
Assembly Appropriations Committee (19-1)
Assembly Floor (73-3)
POSITIONS
Support:
Asian Pacific AIDS Intervention Team, Los Angeles
Antelope Valley Board of Trade
California Independent Petroleum Association (CIPA)
Coachella Valley Economic Partnership
El Centro Del Pueblo, Los Angeles
Gateway Cities Partnership, Inc.
Industry Manufacturers Council
Kern County Board of Supervisors
Kern River Gas Transmission Company
K.MOMS
Korean American Coalition
Korean American Family Service Center, Los Angeles
Korean Health, Education Information & Research Center, Los
Angeles
PG&E
PUC (Support if amended)
SEMPRA Energy
South Orange County Regional Chambers of Commerce
Supervisor John Tavaglione, Second District, Riverside
County
State Board of Equalization
United Chambers of Commerce of the San Fernando Valley
United Latino Fund, Los Angeles
Valley Industry and Commerce Association (VICA)
City of West Hollywood
Numerous Individuals
Oppose:
Office of Ratepayer Advocates (ORA)
TURN
Randy Chinn
AB 1002 Analysis
Hearing Date: July 13, 1999