BILL ANALYSIS 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1388 - Peace Hearing Date:
May 9, 2000 S
As Amended: May 4, 2000 FISCAL B
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DESCRIPTION
Current law provides the California Energy Commission (CEC) with
responsibility for licensing large power plants. Certain state
and local agencies have advisory responsibilities to the CEC
under particular circumstances.
This bill requires those state and local agencies to provide
recommendations within 180 days of the filing of an application
to license a power plant.
Current law requires the CEC to prepare a geothermal resource
sufficiency study whenever it considers a proposal to site a
geothermal electric generation facility.
This bill deletes that requirement.
Current law provides the Federal Energy Regulatory Commission
(FERC) with authority to set electric transmission rates.
This bill requires the CPUC, in conjunction with the Electricity
Oversight Board (EOB), to facilitate FERC approval of reasonable
transmission facility planning and engineering expenditures,
even if those expenditures do not result in operational
transmission facilities. This bill further requires the CPUC to
approve all reasonable transmission planning, design, and
engineering expenditures irrespective of whether those
expenditures result in an operational transmission line.
Current law provides for competition in the generation and sale
of electricity.
This bill requires the California Public Utilities Commission
(CPUC) to conduct specified pilot projects to gauge small
consumer responsiveness to energy usage and price information.
BACKGROUND
This bill has three distinct parts: Part 1 deals with power
plant licensing improvements recommended by the CEC, Part 2
deals with recovering transmission planning costs from
customers, and Part 3 establishes pilot programs to test small
customer responsiveness to energy price and usage information.
Part 1 - CEC Report Recommendations
In March 2000, the CEC issued a report recommending a number of
improvements to its power plant siting process. That report,
which was reviewed by this Committee during an April 11, 2000,
informational hearing, suggests a number of statutory,
regulatory, and management changes.
This bill implements two of the CEC's recommended statutory
changes, the first of which deletes the requirement that the CEC
perform a steam-field adequacy analysis for geothermal projects.
Geothermal projects are electrical generation projects which
utilize underground heat and steam as the energy source (e.g.
the Geysers power plants). A steam-field adequacy analysis
investigates whether there is enough underground heat and steam
to power the plant through its projected life. The CEC
recommended deleting this requirement because in a competitive
generation market, it believes the responsibility of ensuring an
adequate fuel supply, in this case heat and water, should fall
to the power plant developer and not rest with the CEC.
The second of the recommended changes implemented by this bill
is a requirement that state and local governmental entities
having jurisdiction or an interest in a proposed power plant
make their recommendations within 180 days of the filing of the
project. The CEC noted that it has a statutory one year
requirement to process power plant siting applications and its
ability to meet that deadline is jeopardized in cases where
state and local agencies provide their comments late in the
process. While the CEC has entered into Memoranda of
Understanding (MOU) with the California Air Resources Board, the
Department of Toxic Substance Control, the California
Independent System Operator, and a number of other agencies to
establish a 180 day target for input, this bill applies a
statutory requirement of 180 days to those agencies and to other
entities not covered by such MOUs.
Part 2 - Transmission Lines
Transmission lines are an essential electric infrastructure and
those lines owned by investor-owned electric utilities (IOU),
such as PG&E and Southern California Edison, are rate regulated.
The IOUs plan and engineer new transmission lines to serve
their service territories, but they can't build those lines
without approval from the Independent System Operator (ISO), the
statutorily-created entity controlling the transmission system.
The ISO evaluates all transmission facility proposals and
considers alternate ways of meeting customer demand, such as
building new power plants or alternative transmission
facilities, then selects the least costly option.
IOUs are concerned that if their transmission facilities aren't
permitted to be built, they aren't assured that their planning
and engineering costs for transmission facilities will be
recoverable from customers. The failure to be able to recover
those costs could discourage utilities from doing necessary
planning, thereby impairing the future ability of the
transmission system to operate reliably and efficiently.
This bill proposes to resolve that concern by stating that the
Legislature finds that reasonable expenditures for planning and
engineering of transmission facilities is in the public interest
and requires the CPUC and the EOB to jointly facilitate approval
of those costs in the transmission rates approved by FERC. The
bill further requires the CPUC to allow recovery of all
reasonable expenditures for transmission planning, design, and
engineering, regardless of whether such facilities become
operational.
Part 3 - Residential and Small Commercial Customer Pilot
Projects
Much of the effort in restructuring the electric industry was
focused on creating a competitive market for electric generation
- in other words, increasing the supply of electricity - but
little work was done on addressing the issue of consumer demand,
largely because the price for electricity was frozen.
As electric rates are unfrozen, which is the case in the San
Diego Gas & Electric Company (SDG&E) territory, customers will
see variations in their electric bill based not just on changes
in usage but also on changes in the price of electricity. While
rates were frozen, consumers had little incentive to pay
attention to when they were using electricity because the price
for electricity was always the same. As rates become unfrozen,
consumers who want to keep their bills low have an incentive to
use their electricity at the least expensive times of the day -
if they can easily figure out the price of electricity at a
given time of day and if they are charged a price which varies
by time of day.
The author believes this consumer reaction, known as "demand
responsiveness," is an important component of electric system
reliability and of a well-functioning market. Encouraging
demand responsiveness is particularly critical at a time when
California is facing a squeeze in resources and the prospect of
high energy prices under adverse climatic conditions.
This bill establishes three pilot projects limited to
residential and small commercial customers to test varying ways
of providing consumers with that type of pricing information.
The first provides real-time (minute-to-minute) usage
information ; the second provides for peak, mid-peak, and
off-peak usage and rate information coupled with a utility rate
schedule that differentially prices electricity at peak,
mid-peak and off-peak rates, while the third provides for hourly
usage and rate information coupled with a utility rate schedule
that allows prices to vary by the hour. The author believes
obtaining a better understanding of the extent to which various
levels and types of usage and price information will trigger
demand responsiveness is essential in understanding the cost
effectiveness of the types of investments and opportunities that
should be afforded customers.
The bill requires all utilities that no longer have frozen rates
to participate in the three pilots, which means only SDG&E will
be immediately affected by the bill. However, once Pacific Gas
& Electric Company (PG&E) and Southern California Edison (SCE)
are out from the rate freeze (which should happen sometime in
2001), then some of their customers will also have to
participate in the three pilot programs.
The total pilot program participation is limited to 3% of the
residential and small commercial customers of each utility and
is further limited to the minimum number of customers needed to
develop a statistically valid sample for the two pilots with
time-of-use rates. The design and implementation of the pilot
study shall include interested energy service providers and
equipment manufacturers.
Each of the three pilot programs is required to use a standard
usage information output interface, which the bills defines, and
the CPUC will select the interface that conforms with nationally
recognized standards. This bill requires that the interface be
secure, safe, and the most cost-effective available. The purpose
of a standard usage information output interface is to establish
an industry standard, which in turn will drive the creation of
compatible devices which use that consumer information
The cost of the pilot programs is recoverable from customers.
KEY QUESTIONS
1.Does requiring state and local agencies to comment on power
plant siting proposals within 180 days provide them with
adequate time to prepare comments?
2.Should the CPUC and the EOB be required to facilitate approval
of utility transmission planning costs in the overall
transmission rates approved by FERC?
3.Are the pilot programs created by this bill adequate and
necessary for determining consumer demand responsiveness?
COMMENTS
1) Timeline For Input . As noted in Part 1 of the "Background"
section, the CEC is required to process power plant siting
applications within a year of receiving a completed
application and its ability to meet that deadline is
jeopardized in cases where state and local agencies provide
their comments late in the process. To alleviate that
problem, this bill requires state and local governmental
entities having jurisdiction or an interest in a proposed
power plant to make their recommendations within 180 days of
the filing of the project.
2) Transmission Planning Cost Recovery . As noted in Part 2 of
the "Background" section, this bill requires the CPUC and the
EOB to facilitate FERC approval of reasonable transmission
facility planning and engineering expenses - even if those
expenditures don't result in operational transmission
facilities.
The author believes electrical corporations shouldn't be
discouraged from engaging in transmission planning because of
concerns that the costs of such planning may not be recovered
in the event that the project isn't ultimately needed. FERC's
practice is to allow recovery of only 50% of such costs. By
directing the CPUC and EOB to essentially go to bat for the
utilities at FERC, the author hopes to clearly express
California's policy preferences to FERC and to persuade the
agency to allow for more than 50% cost recovery. To more
clearly accomplish this goal, the author and committee may
wish to make two clarifications :
The first sentence of paragraph (b) of this section (Page
17, Line 13) seems to inadvertently require the CPUC to
allow for cost recovery of all transmission planning
expenditures even if they're denied by the FERC. This
doesn't seem to be the intent of the overall provision and
the author and committee may wish to consider clarifying
this line.
Second, while the first paragraph of this provision (Page
17, Line 3) allows "reasonable" expenditures to be deemed
prudent and be recoverable, that same terminology isn't
carried over to the second paragraph. The term
"reasonable" is important because it implies a CPUC review
and allows for obviously inappropriate expenditures to be
excluded. The author and committee may wish to consider
inserting the term "reasonable" on Page 17, Line 23.
3) Timing of Pilot Projects . The bill requires all investor
owned utilities to establish these pilot programs within 15
months of the date at which their customers are out of the
rate freeze. For SDG&E, that means it will be required to set
up such a program within 15 months of the enactment of this
bill, which will be January 1, 2001. However, since PG&E and
SCE may not end their rate freeze until late 2001, it could be
two years between the time when the SDG&E pilot projects begin
and the PG&E and SCE projects get off the ground.
The bill requires all of the pilot projects to have identical
offerings so the results of the pilots can be easily compared.
However, given the potentially long time interval between
pilots, there may be changes in technology or practice - or
useful results from the first pilots - that the author may
wish to incorporate into the second set of pilot projects. As
such, the author and committee may wish to consider giving the
CPUC the authority to adjust or waive the additional pilot
programs if it doesn't feel their implementation is warranted.
4) Size of Pilot Projects . The pilot project in each area is
limited to 3% of the residential and small commercial
customers of each utility, and two of the three programs
within each project are capped at the minimum number of
customers needed to develop a statistically valid sample. The
author and committee may wish to consider clarifying that the
3% figure applies to the total aggregate number of customers
taking part in all three pilot programs.
5) Cost of Pilot Projects . Under this bill, the utilities would
select the residential and small customers to take part in the
pilot project and the cost of the project would be recovered
in the rates spread across the entire rate base, including
both small and large customers.
According to information provided by the author's office, the
standard usage information output interface required by the
bill costs about $35 per customer, though that doesn't include
the cost of the visual display device in the home or the
connection from that display device to the output interface.
If the total equipment cost is, for example, $70 per home and
SDG&E includes 3% of its total residential and small customer
base in the program, the total cost of the pilot in the SDG&E
territory could approach $2.5 million, though other estimates
(based on a $200 equipment cost) have been as high as $7
million..
If the total cost of the project is of concern, the author and
committee may wish to consider limiting participation in each
of the three programs to no more than the minimum number of
people necessary to provide a statistically valid sample.
Currently in the bill, this limitation is imposed on the
second and third pilot projects, but not on the first (Page
13, Lines 33-36).
6) Display Error . Providing customers with easily accessed
information is a cornerstone to a sound test of demand
responsiveness, but two of the pilot projects inadvertently
exclude a visual display capability. The author and committee
may wish to consider correcting this drafting error by
deleting the prohibition of the visual display module in two
of the pilot projects and instead requiring them to have a
visual display module (Page 12, Line 30 and Page 12, Line 40).
7) Rate Schedules . Under the electric restructuring statutes,
electric utilities simply pass through their cost of acquiring
electricity. This bill contemplates the utility establishing
"rate schedules" which aren't necessarily limited to cost
pass-throughs and which may require some averaging by the
utility. The author and committee may wish to consider
clarifying that the utility rate schedules adopted pursuant to
this bill are subject to CPUC approval and should reflect the
utility's actual energy costs for the relevant time intervals.
This could be accomplished by making the following changes:
Page 12, Line 26, before "Electrical corporations" add
"Subject to commission approval,"; Page 12, Line 28, after
"use" add "that reflects the electrical corporation's actual
energy cost"; Page 12, Line 34, before "Electrical
corporations" add "Subject to commission approval,"; Page 12,
Line 36, delete "net"; and Page 12, Line 37, end the sentence
after "cost" and delete the remainder of the sentence.
8) Customer Participation . Two of the pilot projects created by
this bill involve changing rate schedules. Residential and
small-commercial customers typically have rates which don't
vary by time or season. Under two of the pilot projects, the
customers will have rates which vary by time of day and time
of year, and they'll have timely information as to how those
rates are changing. This is a significant change for
customers which may or may not be welcome by all. The author
and committee may wish to consider how customers are selected
for the pilot projects. Should the utility be able to select
the customers or should customers be able to volunteer to
participate? In the event the utility selects the customers,
should those customers be able to "opt out' of participating?
9) Interpreting The Results of The Pilot Projects . The pilot
studies are intended to answer basic questions about small
customer demand responsiveness, including whether any
behavioral changes justify wide scale implementation of these
programs. In a competitive electric market, this data may
have value to other potential providers of services and it
would seem to be in keeping with the spirit of the bill to
make this information widely available. While the bill
requires a report to the Legislature on the study results , the
author and committee may wish to consider making the study
data publicly available, subject to sufficient confidentiality
of individual customer information.
10) Technically Speaking . The
author may wish to consider the following technical amendments
to the measure:
a) Page 5, Line 32: After "is" insert "not"
b) Page 5, Line 34: Replace "is" with "may be"
c) Page 6, Line 31: Before "Expenditures" insert
"Reasonable"
d) Page 6, Line 34: After "interest" delete ", reasonable
and" and insert "and are deemed"
e) Page 11, Line 40: Replace "(c)" with "(a)"
f) Page 12, Line 20: After "customer" insert ", electrical
corporation,"
g) Page 14 Line 18: Replace "(c)" with "(a)"
POSITIONS
Sponsor:
Author
Support:
Sempra Energy
Oppose:
California Manufacturers & Technology Association
Randy Chinn
SB 1388 Analysis
Hearing Date: May 9, 2000