BILL ANALYSIS
AB 2441
Page 1
Date of Hearing: April 19, 2010
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 2441 (Tom Berryhill) - As Amended: April 8, 2010
SUBJECT : Natural gas surcharge.
SUMMARY : Requires the California Public Utilities Commission
(CPUC) to set the natural gas surcharge rate for large
commercial and industrial noncore end-use customers at 25% of
the surcharge rate for other customers.
EXISTING LAW requires the CPUC to establish a surcharge, the
public goods charge (PGC) to fund low-income assistance programs
and cost-effective energy efficiency and conservation
activities, and public interest research and development not
provided by the competitive and regulated markets.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, AB 2441 is a real
opportunity to make meaningful regulatory reform to a vital
sector of California's jobs and economy. This bill is intended
to provide some relief to the industrial ratepayers who pay a
significant share of the public goods surcharge, but may not
reap the proportional benefits. This huge economic burden is
placed on a very limited number of firms and it is based on a
cost allocation method that forces food processors and other
industrial businesses to subsidize several costly programs that
provide no benefit to the industrial rate class. These
businesses provide good jobs to the state's economy and these
food processors are located statewide. The departure or
downsizing of these firms will result in the loss of numerous
jobs and significant and lasting effects on farms and
communities located across California.
1) The PGC : Prior to electric utility deregulation, the CPUC
required the utilities to perform some level of research,
development and demonstration to spur innovation and
technological advancement. In addition, the CPUC required the
electrical utilities to provide a separate program for
low-income customers. Costs for all of these "public-purpose
programs" were recovered in rates. Public-purpose programs
include cost-effective energy efficiency and conservation
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activities, public interest research and development not
adequately provided by competitive and regulated markets,
in-state operation and development of existing and new and
emerging renewable resource technologies, and the low-income
ratepayer programs.
During the discussions on deregulating the wholesale and retail
electricity markets (AB 1890, Brulte, Chapter 854, Statutes of
1996), the incumbent electrical utilities voiced concern that
the requirement to continue to collect these funds in their
rates would place them at a competitive disadvantage if their
competitors were not required to also collect the costs of the
programs. As a result, AB 1890 directed the CPUC to require
each electrical corporation to identify a separate rate
component to collect the revenues used to fund these programs.
The rate component shall be a nonbypassable element of the local
distribution service and collected on the basis of usage. AB
1890 also determined the allocation of funds and the amounts
collected for each utility.
2) The natural gas surcharge : AB 1002 (Wright) Chapter 932,
Statutes of 2000, required the CPUC to impose a surcharge on all
natural gas consumed in the state to fund the public purpose
programs. Gas public-purpose program costs are recovered
through a separate surcharge on core and on exempt noncore
customers. The "core/non-core" approach divides gas customers
into core and non-core classes according to consumption. Gas
utilities are required to procure and deliver a portfolio of gas
supplies sufficient to serve their core (residential and small-
commercial) customers. Non-core customers must arrange for
procurement and transportation of their own gas supplies.
Gas public-purpose programs costs are determined in various CPUC
proceedings associated with the particular type of gas program.
The CPUC states that the gas program costs have increased in
recent years, but are a small part of total costs. The CPUC has
authorized cost increases of 23% overall since 2006. In the AB
67 (Levine) Chapter 562, Statutes of 2005, annual report to the
Legislature, the CPUC attributes the cost increases to "?
significant increases for energy efficiency, low-income energy
efficiency, and natural gas research and development programs.
These increases more than offset decreases in the CARE subsidy.
With these increases, gas public-purpose program costs were
about 7% of total utility costs in 2009."
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Total public-purpose program collections for 2009 are as
follows: $167,503 for gas energy-efficiency programs, $101,689
for gas low-income energy efficiency, $24,715 for gas public
interest research and development, and $237,575 for the gas
California Alternate Rates for Energy (CARE) program.
3) The CARE component : The large industrial ratepayers are
concerned that costs for the CARE program are escalating, and
their customer class is not benefiting by it. In 2007, the gas
utilities collected $174 million for CARE. In 2008, they
collected $205 million, and in 2009, they collected $238
million. The 2009 amount is a 37% increase over the 2007
amount.
Only non-CARE customers pay for the CARE subsidy portion of the
gas public-purpose surcharge. The gas surcharges are changed
annually through advice letter filings, incorporating the
revenue requirements for the gas public-purpose programs adopted
in CPUC proceedings.
Some consumer advocates are concerned that because the PGC is an
element of the local distribution service, costs are
disproportionately borne by residential ratepayers. (Due to
population density, residential customers use more of the local
distribution wires.) To attempt to remedy this concern, the
CPUC opened a proceeding to determine the appropriate allocation
of costs for the PGC and concluded that for electrical
corporations and for public utilities that are both electrical
corporations and gas corporations, costs of the CARE program
would be assessed on an equal cents per kilowatthour or equal
cents per therm basis to all classes of customers that were
subject to the surcharge. This was codified by SB 695 (Kehoe)
Chapter 337, Statutes of 2009. As such, this codified formula
applies to PG&E and San Diego Gas and Electric (SDG&E)
ratepayers.
This committee may wish to strike the mandatory percentage
required by this bill, and instead, require the CPUC to open a
proceeding to re-examine the allocation of PGC assessed on the
different ratepayer classes. When re-examining the allocation
of PGC, the CPUC shall consider job creation, job retention, and
job training. If the CPUC amends the rule for utilities not
affected by SB 695, after two years of implementing the
allocation rules, the CPUC shall report to the Legislature on
whether the amended allocations affected job creation, job
AB 2441
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retention, and job training.
REGISTERED SUPPORT / OPPOSITION :
Support
California League of Food Processors (CLFP) (Sponsor)
California Manufacturers & Technology Association (CMTA)
Opposition
None on file.
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083