BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 695
                                                                  Page  1

          Date of Hearing:   August 19, 2009

                                Kevin De Leon, Chair

                    SB 695 (Kehoe) - As Amended:  August 17, 2009 

          Policy Committee:                               

          Urgency:     Yes                  State Mandated Local Program:  
          Yes    Reimbursable:              No


          This bill eliminates the current rate freeze on electricity  
          usage for residential customers of up to 130% of the baseline  
          rate, allows limited expansion of direct access purchases of  
          electricity, and provides several other rate stabilization  
          measures.  Specifically, this bill:

          1)Permits the PUC to allow individual retail non-residential  
            end-use customers to acquire direct-access electric service in  
            an amount up to a maximum of the total kilowatt hours supplied  
            by direct access in a utility's service territory for any year  
            between April 1, 1998 and December 31, 2009.

          2)Requires the PUC, within the sooner of six months following  
            enactment or July 1, 2010, to reopen direct access immediately  
            and to phase-in to the allowable limit per (2) within three  

          3)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.

          4)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.

          5)Restricts rate increases for CARE program participants for  
            electricity usage of up to 130% of baseline quantities by the  
            annual percentage increase in benefits under the CalWORKs  
            program, not to exceed 3% per year.


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          6)Caps CARE electricity rates at 80% of the corresponding rates  
            charged to residential customers not participating in CARE  

          7)Restricts rate increases charged to residential customers for  
            electricity usage of 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.

          8)Prohibits PUC from requiring or permitting an electrical  
            corporation from employing mandatory or default time-variant  
            pricing for residential customers prior to January 1, 2013, or  
            to employ such pricing without "bill protection" to  
            residential customers prior to January 1, 2014, or to employ  
            mandatory or default real-time pricing without bill protection  
            to residential customers prior to January 1, 2020, and permits  
            the PUC to authorize an electrical corporation to offer  
            residential customers the option of receiving service under  
            dynamic pricing.

          9)Defines "bill protection" to mean that total electrical  
            charges for a customer on time-variant pricing shall not  
            exceed the amount that would have been due under the  
            customer's previous rate schedule.

          10)Requires the PUC to report by May 1, 2010 and annually  
            thereafter with recommendations for actions that can be taken  
            to limit utility cost and rate increases over the succeeding  
            12 months.

           FISCAL EFFECT  

          The PUC can absorb the workload in this bill within existing  
          resources, using staff currently working on the CARE program,  
          direct access, low-income energy efficiency programs, and rate  


           1)Purpose  .  According to the author, the purpose of this bill is  
            to lift some of the emergency measures imposed during the  
            energy crisis-including capping residential retail rates and  
            suspending the ability of customers to choose a direct-access  


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            electricity provider-that at the time helped stabilize rates.   
            Maintaining current policies could actually lead to dramatic  
            rate changes if the rate stabilization measures imposed during  
            the crisis were suddenly released without the incremental  
            changes proposed in this bill.

            SB 695 also requires the utilities' energy efficiency programs  
            to emphasize assisting high-energy users and those in  
            multi-unit dwellings.  For tenants in multi-unit dwellings, it  
            may not be feasible for the user to invest on their own to  
            reduce energy use because most energy efficiency measures stay  
            with the dwelling, which they might not own.  

           2)Capped electricity rates  : During the energy crisis, ABX1 1  
            (Keeley)/Chapter 4 of 2001 protected 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 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 prohibited the 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.)

            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  
            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 the top tiers are about $0.46 per kilowatt hour.  It is  
            uncertain when DWR will retire the ABX1 1 bond debt or fully  
            recover its costs.  At that time, however, 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,  
            SB 695 is intended to minimize spikes in electricity rates and  


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            provide relative stability and predictability.

           3)Dynamic pricing  :  Dynamic pricing models, also called  
            time-variant pricing, are intended to reduce demand during  
            peak periods. While dynamic rates or time-of-use rates could  
            provide an incentive for customers to use less electricity at  
            peak times, consumer groups are concerned that it also  
            punishes those customers who may not be able to shift their  
            electricity use to off-peak times. This bill prohibits the PUC  
            from imposing mandatory dynamic pricing rates until January 1,  
            2014, but allows the PUC to allow a dynamic pricing rate  
            structure on an opt-in basis up until that time.

           4)Direct-access service  :  Direct-access service, whereby an  
            electricity customer may choose providers of electricity other  
            than their utility, was authorized as part of the  
            restructuring of the electric industry, AB 1890  
            (Brulte)/Chapter 854 of 1996.  To ensure the predictable  
            revenue stream necessary for long-term contracts procured by  
            the DWR during the energy crisis, and to prevent cost-shifting  
            from direct-access to bundled-service customers, the  
            Legislature directed the 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. 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.

           5)Related Legislation  .  AB 413 (Fuentes), a similar bill, is  
            pending in Senate Appropriations.

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081