BILL ANALYSIS
SB 695
Page 1
Date of Hearing: June 29, 2009
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Felipe Fuentes, Chair
SB 695 (Kehoe) - As Amended: June 24, 2009
SENATE VOTE : 37-0
SUBJECT : Electricity: rates.
SUMMARY : Eliminates the current rate freeze for electricity
usage for residential customers of up to 130% of the baseline
rate, lifts the current suspension and provides limited
expansion of direct-access electricity service, and provides a
number of other rate stabilization measures to address emergency
measures instituted during the 2001 energy crisis.
EXISTING LAW :
1)Prohibits PUC from increasing electricity charges for
residential customers for usage of up to 130% of existing
baseline quantities until the Department of Water Resources
(DWR) has recovered the costs of power it has procured for the
electrical corporation's retail end-use customers.
2)Suspends the right of retail end-use customers to acquire
direct-access service for electricity from other providers
until DWR no longer supplies power.
THIS BILL :
1)Requires electrical corporations to target energy efficiency
and solar programs toward low-income, upper-tier, and
multifamily customers to reduce long-term energy usage, and be
recovered from specific public utilities on an equal
cent-per-kilowatthour or equal cents-per-them basis from all
classes of customers, as specified.
2)Deletes the suspension of direct-access service under
specified conditions, and requires the suspension to be lifted
by an act of the Legislature.
3)Permits PUC to allow individual retail non-residential end-use
customers to acquire direct-access electric service up to a
maximum allowable total kilowatthours annual limit in that
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utility's service territory for any year between April 1 1998,
and December 31, 2009.
4)Within the sooner of 6 months or July 1, 2010, requires the
PUC to adopt a phase-in schedule for direct-access service of
not less than three years.
5)Ensures that electric service providers of direct-access
electricity are subject to the same resource adequacy,
renewables portfolio standards, and greenhouse gas emission
reduction laws and regulations as the investor-owned
utilities.
6)Requires the PUC, in allocating the cost of new generation
resources acquired by an electrical corporation to meet system
or local area reliability needs, to ensure that the customers
to whom the net costs and benefits of capacity are allocated,
are not required to pay for the cost of electricity they do
not consume.
7)Requires the PUC to ensure that all eligible low-income
electricity and gas customers are given the opportunity to
participate in low-income energy efficiency programs,
including customers occupying apartment houses or similar
multiunit residential structures.
8)Requires the California Alternate Rates for Energy (CARE)
program to be offered to low-income electric and gas customers
with annual household incomes at or below 200% of the federal
poverty levels.
9)Restricts rate increases for CARE program participants for
electricity usage up to 130% of baseline quantities by the
annual percentage increase in benefits under the CalWORKs
program, not to exceed 3% per year.
10)Caps CARE electricity rates at 80% of the corresponding rates
charged to residential customers not participating in CARE
program.
11)Restricts rate increases charged to residential customers for
electricity usage up to 130% of the baseline quantities, by
the annual percentage change in the Consumer Price Index plus
1%, but not less than 3% and not more than 5% per year.
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12)Prohibits PUC from requiring or permitting an electrical
corporation from employing mandatory or default time-variant
pricing for residential customers prior to January 1, 2016,
and permits PUC to authorize an electrical corporation to
offer residential customers the option of receiving service
pursuant to dynamic pricing.
FISCAL EFFECT : Unknown.
COMMENTS : This bill lifts some of the emergency measures
imposed during the energy crisis that at the time helped
stabilize rates. Now those actions may actually lead to
dramatic rate changes if the rate stabilization measures were
suddenly released without measured changes. Some actions the
Legislature imposed included capping residential retail rates
and suspending the ability for customers to choose a
direct-access electricity provider.
1) Background : During the energy crisis in 2001, the
Legislature passed ABX1 1 (Keeley) Chapter 4, Statutes of 2001,
to protect California ratepayers from rampant price fluctuations
due to a dysfunctional wholesale electricity market. ABX1 1
authorized the Department of Water Resources (DWR) to issue
revenue bonds to purchase power at such prices the department
deemed appropriate, on behalf of the cash-strapped
investor-owned utilities who couldn't keep up with the volatile
wholesale prices. Among other stabilizing efforts, ABX1 1
included a provision that prohibits PUC from increasing rates
for usage under 130% of baseline until DWR bond charges are paid
off.
Energy charges for residential customers are based on the
quantity of electricity used by a customer, and each successive
block of electricity usage is billed at increased per-unit
prices. Each block is referred to as a tier. ABX1 1 capped the
lowest two tiers of electricity usage: (1) baseline and (2)
130% of baseline. These tiers are based on usage, and not
necessarily income levels.
Because rates in the lowest tiers are still capped, increased
costs such as rising fuel prices, and legislatively mandated and
PUC-created programs, are disproportionately borne by those
customers whose electricity usage falls in the upper tiers. For
example, in Pacific Gas & Electric's territory, the 130% of
baseline quantities cost is about $0.11 per kilowatt hour, while
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the top tiers are about $0.46 per kilowatt hour. Additional
costs associated with increasing the State's renewable portfolio
standard or reliability efforts will be imposed on the
ratepayers who use more than 130% of baseline.
It is uncertain when DWR will retire the ABX1 1 bond debt or
fully recovered its costs. At that time, the lower-tiered rates
are expected to skyrocket to provide less of a spread between
the 130% of baseline and the higher tiers. By restricting rate
increases to an annual narrow range and controlling the increase
within relatively small parameters, AB 413 is intended to
minimize spikes in electricity rates and provide relative
stability and predictability.
2) This bill looks familiar : About two years ago, Southern
California Edison (SCE) presented to members of this committee
an overview of the consequences experienced by the
implementation of ABX1 1. SCE revealed that income and usage
are not perfectly correlated. About 10% of those customers
whose usage pushed them into Tier-5 rates ($.31/kWh) generated
an annual income of less than $30,000. About 50% of residential
customers paying Tier-5 rates generated less than $100,000 in
annual income.
This committee encouraged SCE to collaborate with the other
utilities and consumer groups to devise a strategy that would
protect residential ratepayers from sudden rate shock, while
ensuring continued protection for low-income ratepayers. Due to
the significant complexity of each of the issues associated with
lifting the rate cap, the parties negotiated about 90% of the
provisions by the end of last year's Legislative Session. The
remaining outstanding issue was associated with the degree of
expansion of direct-access service.
Because it was late in the session, an Assembly vehicle was not
available. This committee used SB 1536 (Dutton, then Kehoe) as
a vehicle, which was passed by this committee and placed on the
Assembly inactive file. The contents of the negotiation were
placed in SB 1536 and the bill failed passage.
This year, the Chair of this committee introduced AB 413
(Fuentes) to continue facilitating a resolution to the ABX1 1
constraints. The direct-access issue has been resolved, and
other amendments were made to clarify directives and ensure
costs and benefits of resource adequacy are adequately
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allocated. This bill, SB 695, is intended to reflect the same
negotiated resolutions as AB 413. However, due to timing issues,
AB 413 will be amended to reflect this version of SB 695.
3) What is direct-access service : Direct-access service is
where an electricity customer is allowed to choose alternate
providers of electricity, other than their utility. As part of
the restructuring of the electric industry, AB 1890 (Brulte)
Chapter 854, Statutes of 1996, authorized direct access. To
avoid the dysfunctional spot market that financially decimated
IOUs and threatened catastrophic rate increases, ABX1 1
established a structure to permit DWR to buy needed electricity
for investor-owned utility (IOU) customers under long-term
contracts. To ensure the predictable revenue stream necessary
for long-term contracts and issue ratepayer-backed revenue
bonds, and to prevent cost-shifting from direct-access to
bundled-service customers, the Legislature directed PUC to
suspend direct access to prevent additional migration of IOU
customers.
The ability to choose direct-access service was officially
suspended on September 20, 2001. However, PUC rules allow
certain "eligible" customers to begin direct-access service
after the suspension date and switch between bundled service and
direct-access service.
The parties have come to an agreement on the limited expansion
of direct-access service. This bill would allow the expansion
of direct-access service to individual retail non-residential
end-use customers up to the total annual kilowatt-hours supplied
by electric service providers for any year after April 1, 1998.
RELATED LEGISLATION :
AB 413 (Fuentes) is identical to this bill. AB 413 passed out
of this committee on an 11-1 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
California Retailers Association
Direct Energy
Division of Ratepayer Advocates (DRA)
Green Eco Tek LLC.
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Pacific Gas and Electric (PG&E)
School Project for Utility Rate Reduction (SPURR)
Sempra Energy Solutions (SES)
Shell Energy North America
Southern California Edison (SCE)
The Utility Reform Network (TURN)
Opposition
California Large Energy Consumers Association (CLECA)
California Manufacturers Technology Association (CMTA)
California Public Utilities Commission (CPUC)
Community Choice Energy Council
Independent Energy Producers (IEP)
Marin County Board of Supervisors
Marin Energy Authority
San Francisco Public Utilities Commission
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083