BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 1002 - Wright Hearing
Date: June 27, 2000 A
As Amended: June 19, 2000 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 through the rates for
natural gas paid by customers of pipelines regulated by the
California Public Utilities Commission (CPUC). Those who
use gas transported by an interstate pipeline, which are
regulated by the Federal Energy Regulatory Commission
(FERC), are exempt from having to pay these costs because
FERC doesn't build them into its rate structure.
This bill establishes a non-bypassable natural gas
surcharge on customers of both CPUC-regulated and
FERC-regulated pipelines to pay for these existing programs
and codifies specified exemptions to the surcharge.
This bill allows the surcharge to be established by class
of customer and may be specific to the service territory of
each gas public utility. Therefore, a customer of an
interstate pipeline will pay the same surcharge as if he or
she were a customer of a CPUC-regulated pipeline.
This bill authorizes the CPUC to establish the surcharge
and the State Board of Equalization (BOE) to collect the
surcharge. Funds will deposited in the Gas Consumption
Surcharge Fund in the State Treasury, which in turn will be
used to pay for the gas public purpose program costs.
BACKGROUND
Competition, Technology, & The Bypassable Surcharge . This
bill stems in part from the increase in competition between
natural gas service providers and the differences between
state and federal regulation of the entities providing that
service.
CPUC-regulated intrastate pipelines compete with
FERC-regulated interstate pipelines to transport natural
gas, but while the CPUC-established rates include the cost
of operating the state's public purpose programs,
FERC-established rates don't include such a cost.
Therefore, customers of those pipelines don't have to pay
the public purpose program charges, which can run up to 20%
of the transportation charge that intrastate pipeline
customers pay. (Note that the transportation charge is
only a fraction of the price paid for delivered natural gas
because it does not include the cost of the gas itself.)
This discrepancy creates a clear incentive for customers to
leave the intrastate pipeline for an interstate pipeline.
This incentive distorts the competitive market because it
allows a FERC-regulated natural gas pipeline company to
charge its customers up to 20% less than a CPUC-regulated
company - and still be just as profitable.
When customers move to an interstate pipeline, they don't
pay the cost of funding the public purpose programs (which
are embedded only in the rates of CPUC-regulated
pipelines), so the cost of the public purpose programs is
born by the remaining customers, whose bills go up to fund
them at specified levels. That increase in turn increases
the incentive for other customers to move to an interstate
pipeline as well, thereby increasing the public purpose
program charges to those left on the intrastate system even
further.
This bill attempts to eliminate the financial incentive for
a customer to leave an intrastate pipeline in favor of an
interstate pipeline by taking the public purpose program
charges out of the rate base of the CPUC-regulated
pipelines, then subjecting customers of both CPUC- and
FERC-regulated pipelines to an identical surcharge to fund
the programs, thereby creating - dare we say - a level
playing field.
Public Purpose Programs . The surcharge established by this
bill will help to fund four separate programs. The program
and 1999 statewide budget amounts are shown below:
Low Income Rate Assistance $48 million
Low Income Energy Efficiency $30 million
Natural Gas Energy Efficiency $45 million
Natural Gas R&D $0.5 million
These programs are currently paid for by the rates charged
for natural gas transported through CPUC-regulated
pipelines. This bill pulls that charge out of the rate
base, then establishes a separately identified surcharge on
the gas bill of both CPUC- and FERC-regulated pipelines.
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.
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 the regulations exempting certain natural gas
customers from the surcharge be codified?
COMMENTS
1)Level The Playing Field . This bill implements the simple
premise that public goods programs which support the
public good should be paid for by all gas pipeline users,
not just those who buy their natural gas from intrastate
pipelines. This is similar to the premise embodied in AB
995 (Wright), which was approved by this Committee at its
June 13 hearing, to extend the existing non-bypassable
surcharge to fund electric public purpose programs. The
public purpose programs supported by this bill are of a
similar character, though they fund distinctly different
programs.
2)Are Fees Going Up, Down, Or Nowhere? Under current law,
the public purpose programs are funded at specified
levels and the charge built into each CPUC-regulated
pipeline customer rate is adjusted up or down - depending
on the number of customers - in order to achieve the
specified funding level.
This bill doesn't raise the total amount of funds
collected for natural gas public purpose programs.
Rather, it effectively lowers the rate paid by customers
of intrastate gas pipelines because it pulls funding for
the programs out of the rate base (which only applies to
CPUC-regulated pipelines today), then creates a
non-bypassable surcharge that applies to customers of
intrastate and interstate pipelines. Since only the
intrastate customers are paying to fund these programs
now, by creating a surcharge and applying it across a
larger rate base, this bill will likely lower the costs
paid by customers of intrastate pipelines.
3)Prior Version . This bill was defeated in this Committee
on a 5-2 vote on July 13, 1999. However, that version of
the measure contained other items that were removed with
the June 6, 2000 and June 19, 2000 amendments to the
bill. Those amendments removed sections of the bill that
dealt with the rate customers of FERC-regulated pipelines
should pay for stand-by or intermittent use of the
CPUC-regulated pipeline, known as the Residual Load
Service (RLS) tariff, along with sections of the bill
that proposed to alter the allocation of the surcharge
between small and large customers.
With regard to the RLS tariff issue, the CPUC has decided
that the RLS tariff should be replaced within one year.
Sempra has recently filed a proposal with the CPUC to do
this, which will be subject to CPUC's public review
process.
ASSEMBLY VOTES
Assembly U & C Committee (11-0)
Assembly Appropriations Committee (19-1)
Assembly Floor (73-3)
POSITIONS
Sponsor:
Southern California Gas Company
Support:
Asian Pacific AIDS Intervention Team, Los Angeles
Antelope Valley Board of Trade
Azusa Chamber of Commerce
California Independent Petroleum Association
Coalition of California Utility Employees
Coachella Valley Economic Partnership
Creative Ark
Curtailing Abuses Related to the Elderly
El Centro Del Pueblo, Los Angeles
Fountain Valley Chamber of Commerce
Gateway Cities Partnership, Inc.
Greater Riverside Hispanic Chamber of Commerce
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
La Verne Chamber of Commerce
LA Works
Menzies & Miller Company
Modern Insurance, Incorporated
Natural Resources Defense Council
Office of Ratepayer Advocates
Pacific Gas & Electric
Ports O' Call Restaurant
Questar Southern Trails
San Gabriel Valley Economic Council
Santa Barbara County Taxpayers Association
Sempra Energy
South Orange County Regional Chambers of Commerce
State Board of Equalization
Supervisor John Tavaglione, Second District, Riverside
County
The Utility Reform Network
United Chambers of Commerce of the San Fernando Valley
United Latino Fund, Los Angeles
Valley Industry and Commerce Association
Ventura County Taxpayers Association
City of West Hollywood
Numerous Individuals
Oppose:
California League of Food Processors
Randy Chinn
AB 1002 Analysis
Hearing Date: June 27, 2000