BILL ANALYSIS AB 1421 Page 1 Date of Hearing: April 19, 1999 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Roderick Wright, Chair AB 1421 (Wright) - As Amended: April 15, 1999 SUBJECT : Gas and electric service. SUMMARY : This bill declares that core customers of a gas corporation should continue to receive safe basic gas service from the gas corporation unless the customer makes a positive declaration to receive service from another entity. This bill also declares that all customers of an electrical corporation should continue to receive basic electric service from the electric corporation unless the customer chooses or contracts to receive power through a direct transaction with another service provider. Specifically, this bill : 1)Defines basic gas service to include transmission, storage, and distribution of natural gas, purchasing natural gas on behalf of a customer, revenue cycle services and after meter services. Revenue cycle services includes metering services, customer billing and collection and related customer services; 2)Defines basic electric service to include transmission and distribution of electric power, purchasing of electric power on behalf of a customer and revenue cycle services such as metering, customer usage, customer billing and related customer services; 3)Allows a customer to choose or contract to receive basic gas service from another provider; 4)Allows a customer to make a positive declaration to receive basic electric service from another provider; 5)Specifies that a public utility gas corporation shall continue to be the exclusive provider of revenue cycle services, as defined, in its service territory, except as specified, and requires the distribution rate to continue to include after-meter services, as defined; 6)Requires California Public Utilities Commission (CPUC) to authorize a gas corporation to purchase natural gas commodity from any source and to set the natural gas commodity portion AB 1421 Page 2 of the bundled rate equal to the weighted average cost of gas; 7)Specifies that the difference between the cost of purchases by the gas corporation and the cost of gas as measured by appropriate market indices shall be shared by the gas corporation and bundled service customers in a manner determined by CPUC; 8)Specifies that all costs of procurement, other than the purchase of natural gas commodity, shall be included as part of the basic distribution rate paid by all distribution customers; 9)Requires CPUC to authorize gas corporations to offer optional competitive rate schedules and tariffs; 10)Requires CPUC to require each electrical corporation to provide bundled basic electric service, as defined, to all customers in its service territory unless the customer makes a positive declaration in accordance with specified existing law to receive electric power through a direct transaction with another electric service provider; 11)Requires metering, billing, and collection service to be provided by the existing public utility electrical corporation, unless the customer makes a positive declaration to receive electric power through a direct transaction with another electric service provider; 12)Requires CPUC to set the electric energy commodity portion of the bundled rate, as specified; 13)Authorizes the electrical corporation to purchase energy and associated ancillary services from the Power Exchange (PX) and from other sources; 14)Specifies that the difference between the cost of purchases from other sources and the cost of purchases from the PX shall be shared by the electrical corporation and bundled service customers in a manner determined by CPUC; 15)Specifies that all costs of providing basic electric service, other than the purchases of energy and ancillary services and transmission shall be included as part of the basic distribution rate paid by all distribution customers; AB 1421 Page 3 16)Authorizes each electrical corporation to offer all customers rate alternatives to purchasing energy as part of basic electric service, such as time-of-use based rates and other optional competitive rates. EXISTING LAW : Permits CPUC to investigate the restructuring of natural gas services, as specified, but prohibits the enactment and enforcement of any natural gas restructuring decisions for core customers prior to January 1, 2000. Permits CPUC to exercise its authority to investigate a process for certification and regulation of the rates, charges, terms, and conditions of default service. Provides that if CPUC determines that a process for certification and regulation of default service is in the public interest, CPUC shall submit its finding and recommendations to the Legislature. FISCAL EFFECT : Unknown. COMMENTS : 1)This bill codifies that the investor owned utilities (IOU) are the default providers of gas and electric service, provides a definition of basic service, and prohibits the unbundling of gas and electric metering and billing. None of the provisions of the bill affect direct access. A customer is still free to choose an energy service provider other than the IOU. 2)This bill defines basic gas service-provided by the IOUs-to include transmission, storage, and distribution of natural gas, purchasing natural gas on behalf of a customer, revenue cycle services, and after meter services. Revenue cycle services include metering services, customer billing and collection, and related customer services. (Metering services, as defined under current law, include, but are not limited to: gas meter installation, maintenance, testing, collecting, and processing consumption data and all related services associated with the meter. After meter services include, but are not limited to: leak investigation, inspecting customer piping and appliances, carbon monoxide investigation, pilot re-lighting, and high bill investigation). AB 1421 Page 4 3)This bill prohibits further unbundling of gas (and electric) metering and billing, which would prevent utilities from charging separately to investigate gas leaks, relight pilot lights, check gas appliances, or check for carbon monoxide leaks. According to the sponsors of this bill, this would ensure that low- and middle-income customers are not forced to choose between safety and saving money on a service call. In September 1998 CPUC's Safety Branch determined that further unbundling of natural gas metering and billing would create safety risks for customers, the public, and utility employees. 4)This bill provides that customers who fail to choose a direct access provider are guaranteed service by IOUs. For IOUs, the natural gas commodity portion of the bundled rate shall be no higher than the weighted average cost of gas, determined by unspecified "appropriate market indices." If the cost to gas customers falls below the average price, the difference between the two accrues to gas customers and the gas corporation, in a manner determined by CPUC. For IOU electric customers, the PX price will serve as the benchmark. When the IOU purchases energy and ancillary services from sources other than the PX, as permitted by this bill, and beats the PX benchmark price, the difference is shared between the electric corporation and its customers. 5)On the electric side, residential and small commercial customers are guaranteed the PX-wholesale price. However, because the IOUs would be allowed to purchase energy outside the PX, the possibility remains that the IOUs, (with 99% retail market share) might manipulate the outcome of the PX auction to the detriment of customers, and the PX-benchmark price. A guarantee of the PX-wholesale price does not ensure that the benchmark will always stay relatively low. 6)Advocates for the energy service providers, and some consumer organizations, including The Utility Reform Network (TURN), are concerned that the provisions of this bill may result in the IOUs gaming the PX to their competitive advantage. According to New Energy Ventures, this bill "codifies the current competitive advantage of the utility default provider and solidifies the market power held by utilities." According to the Clean Power Campaign, this bill eliminate CPUC authority to set the terms and conditions of default service, freezing in place the current system which requires AB 1421 Page 5 energy service providers (ESPs) beat a wholesale price with a retail price. Thus, this bill may prevent green power providers from emerging into a larger market." 7)The Coalition of California Utility Employees and the Southern California Gas Workers Council indicate that this bill guarantees residential and small commercial customers safe, basic gas and electric service, and the benefits of gas and electric restructuring. They also assert that bill ensures that (default provider) customers "continue to get the benefits of competitive energy prices from the PX by doing nothing." 8)By statutorily defining the role of the default provider, this bill limits the role of CPUC in setting policy and guidelines. This bill would repeal the provisions of the Public Utilities Code permitting CPUC to exercise its authority to investigate a process for certification and regulation of the rates, charges, terms, and conditions of default service. SB 477 (Peace, Chapter 275, Statutes of 1997) additionally provided that if CPUC determines that a process for certification and regulation of default service is in the public interest, the Commission shall submit its findings and recommendations to the Legislature for approval. 9)The bill also prohibits "state-mandated slamming," by prohibiting CPUC from adopting proposals to force utility customers to shop for gas and electricity, or to determine the definition of default provider. 10)According to the sponsors, this bill "will ensure that all residential and small business customers can be assured of continued safe and reliable basic electrical and gas service, including bundled revenue cycle services if they choose to continue to receive electric and gas from their existing investor-owned utility." REGISTERED SUPPORT / OPPOSITION : Support Coalition of California Utility Employees (Co-sponsor) Local Union 465, IBEW IBEW, Local Union 659 IBEW, Local Union 1245 AB 1421 Page 6 Southern California Gas Workers Council (Co-sponsor) Sempra Energy Southern California Edison (SCE) Utility Workers of America, Local No. 246 Opposition Association of California Water Agencies California Cleaners Association Clean Power Campaign Enron Corp. IBEW, Local No. 47 New Energy Ventures (NEV) Office of Ratepayer Advocates The Utility Reform Network (TURN) Analysis Prepared by : Joseph Lyons / U. & C. / (916) 319-2083