BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN AB 1421 - Wright Hearing Date: August 25, 1999 A As Amended: August 18, 1999 FISCAL B 1 4 2 1 DESCRIPTION Existing law authorizes the California Public Utilities Commission (CPUC) to investigate restructuring of natural gas services, but requires it to submit its recommendations to the Legislature, and prohibits it from enacting any gas restructuring decisions prior to January 1, 2000 (SB 1602 (Peace), Chapter 401, Statutes of 1998). This bill prevents further restructuring of gas services by designating the incumbent utilities as the mandatory provider of "default" bundled gas service and prohibiting the CPUC from unbundling distribution-related gas services, such as metering and billing, for most customers. Specifically, the bill : Requires that gas utilities provide "bundled basic gas service" (including transmission, storage, distribution, purchasing, revenue cycle services and after meter services) to all "core" (residential and small commercial) customers, unless the customer chooses to purchase gas from a non-utility provider. Requires that gas utilities be the exclusive provider of "revenue cycle services" (meter installation and reading, billing, collection and related customer services) for all customers, except that non-core customers and core customers served by an aggregator may receive billing and collection services from a non-utility provider. Requires that, where billing and collection services by non-utility providers are permitted, the existing "avoided cost" methodology for calculating credits provided by the utility in lieu of providing these services must be maintained. Requires "after meter services" (leak detection and other safety-related services) to be included in the distribution rate and not billed separately. The bill additionally requires electric utilities to conduct research to determine the typical simultaneous peak load of agricultural customers with multiple meters and report to those customers and the CPUC by July 1, 2001. It also requires the CPUC to consider the research results in setting future distribution rates for those customers. KEY QUESTIONS 1.Should the current moratorium on, and investigation of, natural gas restructuring be replaced by a statutory prohibition of further restructuring? 2.Should specific ratemaking issues, such as the methodology for calculating the credit for services not provided by the utility, be fixed in statute? 3.Should the Legislature require electric utilities to conduct what is essentially a private research project intended to benefit their agricultural customers? BACKGROUND The natural gas commodity market has been opened to competition for several years in California and customers have the choice to buy the commodity itself from the incumbent utility provider or alternative providers. However, the appropriate level of competition for the range of services related to providing the gas has been the subject of ongoing debate and discussion, both in the Legislature and at the CPUC. This bill proposes a final answer to any lingering questions about further restructuring of gas services. Pursuant to SB 1602, the CPUC is authorized to investigate restructuring of gas services, but is required to submit its recommendations to the Legislature, and prohibited from enacting any gas restructuring decisions prior to January 1, 2000. This bill prohibits competition for gas-related revenue cycle services, including meter installation and reading, billing, collection and related customer services, by requiring that utilities be the exclusive provider of these services for all customers. Only non-core customers and core customers served by an aggregator may receive billing and collection services from a non-utility provider. For these customers, the existing avoided cost methodology (which favors the incumbent providers) for calculating credits provided by the utility in lieu of providing these services must be maintained. With one exception, this bill's provisions are generally consistent with the CPUC's July 8, 1999 natural gas strategy decision (D.99-07-015) which outlines future options for the gas restructuring. In the decision, the CPUC recommends that the utility be the provider of default service, meter installation and reading, and after-meter services. The exception to this bill's consistency with the CPUC decision is on the issue of billing. The CPUC identifies open competition in billing services for core customers as a promising option, while this bill prohibits competition for billing services for most customers. The CPUC intends to submit its final recommendations on these matters to the Legislature for review later this year. Because this bill repeals SB 1602 and definitively concludes that gas services should not be further unbundled, it renders the moratorium, the CPUC investigation and future review of the findings by the Legislature moot. COMMENTS 1.More-atorium? The CPUC will not formally issue its gas restructuring recommendations to the Legislature until after the end of this year's session and, since the current moratorium expires on January 1, 2000, the Legislature will not have an opportunity to review the recommendations before the moratorium expires. If the Committee is interested in providing for legislative review of the CPUC recommendations, while still preventing CPUC action until the Legislature has reviewed and acted on the recommendations, it could extend the moratorium for an additional year. This would allow the CPUC to finish its work, and the Legislature to review it prior to either the CPUC or the Legislature enacting any final policies. 2.Double-billing? By locking in the avoided cost methodology, this bill arguably will result in "double-billing" for certain services, because the avoided cost methodology results in customers being billed by the utility for residual services that are no longer actually provided by the utility. When a electric customer switches to a non-utility provider of energy, the provider is offered a credit by the utility for costs associated with providing energy to that customer. This bill says that if a similar credit is offered for gas customers, the utility would be required to offer the credit equal to the cost actually avoided by not serving that customer. As a practical matter, for a utility with five million customers to serve, the cost avoided by not serving one customer is essentially zero. This serves as a disincentive to competition, or at least raises the threshold, because it takes a lot of individual customer switches before the utility's avoided cost amounts to much. Competitors naturally prefer a methodology known as "long-run marginal costs." In simplified terms, the cost of providing services to all customers is divided by the total number of customers to calculate the credit offered for each customer. Competitors argue this method ensures that customers to pay only for services actually used. 3.Where did that study come from ? The study of simultaneous peak loads of agricultural customers this bill requires addresses an issue separate from the rest of the bill that's been raised by the Agricultural Energy Consumers Association. These customers feel utilities are not fairly metering their consumption, which contributes to high distribution rates. The intent of this study is to establish a more accurate load profile for agricultural customers. The CPUC is required to consider the results in setting future distribution rates for those customers. The Committee approved a related bill, SB 282 (Kelley), on April 13. SB 282 requires the California Energy Commission to report on various activities related to reducing energy costs and improving competitive opportunities for California agriculture and other rural energy customers. SB 282 is on the Senate Floor, awaiting concurrence in Assembly amendments. ASSEMBLY VOTES Assembly U & C (11-0) Assembly Appropriations (13-1) Assembly Floor (50-17) POSITIONS Support: Advocates for Consumer Equity, Inc. Agricultural Energy Consumers Association California Farm Bureau Federation California Firefighters California Labor Federation, AFL-CIO California Teamsters Public Affairs Council Coalition of California Utility Employees Consumer Federation of California Engineers & Scientists of California, Local 20, IFPTE (San Francisco) Eric Lawson, Torrance International Brotherhood of Electrical Workers, Local 100 (Fresno) International Brotherhood of Electrical Workers, Local 11 (Pasadena) International Brotherhood of Electrical Workers, Local 1245 (Walnut Creek) International Brotherhood of Electrical Workers, Local 1710 (El Monte) International Brotherhood of Electrical Workers, Local 18 (Los Angeles) International Brotherhood of Electrical Workers, Local 180 (Vallejo) International Brotherhood of Electrical Workers, Local 2295 (El Monte) International Brotherhood of Electrical Workers, Local 234 (Castroville) International Brotherhood of Electrical Workers, Local 302 (Pleasant Hill) International Brotherhood of Electrical Workers, Local 332 (San Jose) International Brotherhood of Electrical Workers, Local 340 (Sacramento, Yolo) International Brotherhood of Electrical Workers, Local 40 (North Hollywood) International Brotherhood of Electrical Workers, Local 413 (Santa Barbara) International Brotherhood of Electrical Workers, Local 428 (Bakersfield) International Brotherhood of Electrical Workers, Local 440 (Riverside) International Brotherhood of Electrical Workers, Local 441 (Orange County) International Brotherhood of Electrical Workers, Local 45 (Hollywood) International Brotherhood of Electrical Workers, Local 465 (San Diego) International Brotherhood of Electrical Workers, Local 477 (San Bernardino) International Brotherhood of Electrical Workers, Local 551 (Santa Rosa) International Brotherhood of Electrical Workers, Local 569 (San Diego) International Brotherhood of Electrical Workers, Local 595 (Dublin) International Brotherhood of Electrical Workers, Local 6 (San Francisco) International Brotherhood of Electrical Workers, Local 617 (San Mateo) International Brotherhood of Electrical Workers, Local 639 (San Luis Obispo) International Brotherhood of Electrical Workers, Local 684 (Modesto) International Brotherhood of Electrical Workers, Local 952 (Ventura) International Chemical Workers Union Conference/United Food and Commercial Workers Union, Local 350 (Temple City) International Chemical Workers Union Conference/United Food and Commercial Workers Union, Local 47 (West Covina) International Chemical Workers Union Conference/United Food and Commercial Workers Union, Local 58 (La Verne) International Chemical Workers Union Conference/United Food and Commercial Workers Union, Local 78 (Alta Loma) Los Angeles County Federation of Labor, AFL-CIO Pacific Gas and Electric Company Resources for Independent Living, Inc. San Diego-Imperial Counties Labor Council, AFL-CIO San Mateo County Central Labor Council SEMPRA Energy Southern California Edison Southern California Gas Workers Council State Building and Construction Trades Council of California Utility Workers Union of America (National Union) Utility Workers Union of America, Local 132 (Los Angeles) Utility Workers Union of America, Local 170 (Bakersfield) Utility Workers Union of America, Local 246 (Los Alamitos) Utility Workers Union of America, Local 465 (San Diego) Utility Workers Union of America, Local 483 (Santa Barbara) Utility Workers Union of America, Local 522 (Moreno Valley) Utility Workers Union of America, Local 659 (Central Point, Oregon) Oppose: Association of Bay Area Governments Association of California Water Agencies (ACWA) Automated Power Exchange California Public Utilities Commission (CPUC) Clean Power Campaign College of Marin Consumers Union Dixie School District, San Rafael Enron Corporation Environmental Defense Fund Eureka City Schools Folsom Cordova Unified School District Fresno Unified School District Greenmountain Energy Resources Independent Energy Producers Association International Brotherhood of Electrical Workers, Local 47 Marin County Office of Education New Energy Ventures New Haven Unified School District Office of Ratepayer Advocates (ORA) Pacific Utility Installation, Inc. Peralta Community College District Polaris Group Pollock Pines Elementary School District Reliant Energy San Francisco Unified School District Santa Rosa Junior College School Project for Utility Rate Reduction Sierra Club Tamalpais Union High School District The Utility Reform Network (TURN) Tulare Joint Union High School District Utility Consumers' Action Network (UCAN) Utility.com Western Power Trading Forum Lawrence Lingbloom AB 1421 Analysis Hearing Date: August 25, 1999