BILL ANALYSIS
SB 695
Page 1
Date of Hearing: August 19, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
SB 695 (Kehoe) - As Amended: August 17, 2009
Policy Committee:
UtilitiesVote:14-0
Urgency: Yes State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
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
years.
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.
SB 695
Page 2
6)Caps CARE electricity rates at 80% of the corresponding rates
charged to residential customers not participating in CARE
program.
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
design.
COMMENTS
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
SB 695
Page 3
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
SB 695
Page 4
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