BILL ANALYSIS                                                                                                                                                                                                                   1

                            DEBRA BOWEN, CHAIRWOMAN

          AB 117 -  Migden                                  Hearing  
          Date:  June 25, 2002                 A
          As Amended:         June 19, 2002            FISCAL       B

          Existing law  authorizes retail competition within  
          investor-owned utility (IOU) service areas (direct access)  
          and authorizes marketers, public agencies, cities,  
          counties, and special districts to offer electric service  
          to customers aggregated on a voluntary basis, provided that  
          each customer in their jurisdiction agrees to participate  
          by a positive written declaration (opt-in community  

           Existing law  (AB 1X (Keeley), Chapter 4, Statutes of 2001)  
          requires the California Public Utilities Commission (CPUC)  
          to suspend the right of retail customers of IOUs to acquire  
          electric power service from non-IOU providers until the  
          Department of Water Resources (DWR) no longer supplies  
          power to IOU customers.  Pursuant to AB 1X, the CPUC has  
          suspended direct access as of September 20, 2001.

           This bill  establishes a general exception to the direct  
          access suspension for community aggregation undertaken by  
          cities and counties serving their own residents.  This bill  
          changes the procedures governing community aggregation to,  
          among other things, allow cities and counties to aggregate  
          on an "opt-out" basis, rather than an "opt-in" basis.  This  
          bill contains provisions to ensure cost recovery from  
          departing customers.


                Existing law  requires IOUs to collect a non-bypassable  
               surcharge in the distribution component of rates to fund  
               public purpose programs, including energy efficiency and  
               conservation activities.

                This bill  requires the IOU to direct a proportional share  
               of its energy efficiency activities to the community  
               aggregator's territory.

                Existing law  requires non-IOU electric service providers  
               (ESPs) to register with the CPUC, but only if they serve  
               residential and small commercial customers.

               This bill  requires all ESPs to register with the CPUC.
               In 1996, the Legislature passed AB 1890 (Brulte), Chapter  
               856, Statutes of 1996, to restructure the electric  
               industry.  One of the key features of electrical  
               restructuring was the authorization of retail competition  
               within IOU service areas.  AB 1890 ended the service  
               monopoly of utilities and authorized retail customers to  
               purchase energy directly from suppliers.  These  
               transactions are known as "direct access."  Community  
               aggregation is a form of direct access where, for example,  
               a city may act as a purchasing agent on behalf of its  

               Opt-in community aggregation, wherein the governing body of  
               the community, such as the city council, chooses an  
               electricity supplier for the entire community, was  
               discussed but ultimately tabled during the AB 1890 debates.  
                This bill resurrects that concept by permitting the  
               governing body to select a provider of electricity which  
               then becomes the default provider for everyone in the  

               AB 1X, as part of the structure to authorize DWR to  
               purchase electricity for utility customers, authorized the  
               CPUC to prohibit additional direct access (including  
               community aggregation).  AB 1X permits the issuance of  
               ratepayer-backed revenue bonds to finance DWR purchasing  


          costs.  To ensure the predictable revenue stream necessary  
          for the issuance of bonds and prevent cost-shifting from  
          direct access to bundled service customers, the CPUC was  
          authorized to prevent additional migration of IOU customers  
          by suspending direct access.  Pursuant to AB 1X, the CPUC  
          has suspended IOU customers' right to acquire direct access  
          service after September 20, 2001.

          The public goods surcharge and accompanying programs were  
          established initially by AB 1890 and extended by SB 1194  
          (Sher), Chapter 1050, Statutes of 2000 and AB 995 (Wright),  
          Chapter 1051, Statutes of 2000.  The public goods surcharge  
          is a per-kilowatt-hour fee paid by all electric customers  
          to fund four public goods categories:  1) energy  
          efficiency; 2) renewable energy sources; 3) research and  
          development of alternative energy supplies; and 4)  
          assistance to low-income customers.

          The law requires the IOUs to spend specific amounts of  
          money or percentages of money from the baseline year 1994,  
          in each of the first three categories, while the fourth,  
          the low-income assistance program, is a needs-based  
          program.  Because the public goods surcharge is collected  
          in the distribution component of rates and is  
          non-bypassable, customers purchasing electricity from a  
          community aggregator would continue to pay the public goods  
          surcharge to their IOU.

           1)Opt-in vs. opt-out  .  Under current law, cities, counties,  
            special districts, public agencies, and private  
            individuals and businesses can aggregate their electric  
            loads on a voluntary basis, provided that each customer  
            "opts in" to the system.  Like other direct access  
            service, new aggregation arrangements have been suspended  
            by the CPUC.

            This bill changes the burden on the individual customer  
            because it permits cities and counties to aggregate the  
            load for every customer within their jurisdiction and  
            requires the individual customer to "opt-out" if he or  
            she wants to continue buying power from the applicable  


                 While individual consumers, so long as they receive  
                 adequate disclosure, bear some obligation for  
                 understanding the risks, the opt-out change also places a  
                 high consumer-protection burden on city or county  
                 officials, who will be representing their constituents in  
                 an unregulated electricity market not well known for its  
                 emphasis on the needs of consumers.  While they are  
                 accountable to voters for their successes or failures,  
                 many will not have the level of sophistication in the  
                 electricity business as a CPUC-regulated utility or a  
                 municipal electric utility.

                2)From each according to consumption, to each according  
                 to?"proportional share."   This bill requires an IOU to  
                 direct a "proportional share" of its energy efficiency  
                 activities to the territory of a community aggregator.   
                 Unlike a municipal utility, community aggregators have no  
                 means to collect a public good surcharge on their own,  
                 so, like individual direct access customers, they will  
                 rely on the funds collected and spent by the IOU on  
                 programs designed by the IOU and approved by the CPUC.  

                 This bill introduces the concept of a particular group of  
                 customers, in this case a city or county, being entitled  
                 to a proportional share.  "Proportional share" is not  
                 defined, but since the public goods surcharge is assessed  
                 according to electricity consumption, the proportional  
                 share would likely be determined according to consumption  
                 as well, rather than other factors such as population or  
                 geographic area.

                 This represents a departure from the current "public  
                 good" philosophy (whether this philosophy works in  
                 practice in another matter) by entitling certain  
                 communities to services according to what their customers  
                 pay, rather than what they need.   The author and  
                 committee may wish to consider  amending the bill to  
                 clarify what the share of energy efficiency activities is  
                 proportional to and to allow a community to receive more  
                 or less than a proportional share if the CPUC finds that  
                 a "non-proportional" allocation would be more  


           3)Related legislation.   AB 80 (Havice), approved by this  
            committee on June 11 and pending in the Senate  
            Appropriations Committee, establishes an exemption from  
            the direct access suspension which would authorize two  
            cities (Cerritos and San Marcos) to act as community  
            aggregators and provide direct access service to their  

            AB 9XX (Migden), approved by this committee on August 29,  
            2001 and vetoed by the Governor on October 14, 2001,  
            changed the procedures governing community aggregation in  
            the same way as this bill, but contained more general  
            provisions intended to ensure cost recovery from  
            departing customers.  

            According to Governor's veto message, "rapid growth in  
            direct access necessitates more concise cost-containment  
            provisions for the remaining IOU customers than those  
            contained in (AB 9XX), and those provisions should apply  
            to all direct access contracts."

            The cost-containment provisions in this bill are  
            agreeable to the Administration and essentially identical  
            to those adopted by this committee for AB 80.
                                 ASSEMBLY VOTES
          Assembly Floor                     (73-0)
          Assembly Appropriations Committee  (20-0)
          Assembly Business and Professions Committee(12-0)


          California Public Interest Research Group
          California State Association of Counties
          City of Berkeley
          City of Corona Joint Powers Authority
          City of Culver City


               East Bay Municipal Utility District
               League of California Cities
               Pacific Area Communications
               Pacific Gas and Electric Company (if amended)
               An individual 

               Southern California Edison


               Lawrence Lingbloom 
               AB 117 Analysis
               Hearing Date:  June 25, 2002