BILL ANALYSIS                                                                                                                                                                                                    Ó          1





                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                 ALEX PADILLA, CHAIR
          

          SB 790 -  Leno                Hearing Date:  April 28, 2011       
          S
          As Amended:         April 14, 2011           FISCAL       B
                                                                        
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                                      DESCRIPTION
           
           Current law  authorizes the non-residential, retail end-use 
          customers of an electrical corporation (IOU) to purchase 
          electrical service directly from non-utility providers (energy 
          service providers or ESPs), a program commonly referred to as 
          Direct Access.  Participation is capped as a percentage of total 
          electrical load based on a specified formula.

           Current law  establishes a general exception to the cap on direct 
          access for community choice aggregation (CCA) undertaken by 
          cities and counties serving their own residents and businesses.

           This bill  expands the government entities eligible to form a CCA 
          to include any public agency with power authorizing it to 
          generate or deliver electricity within its designated 
          jurisdiction.

           Current law  requires the CPUC, in consultation with the 
          California Independent System Operator (ISO), to establish 
          resource adequacy requirements for all load serving entities 
          (e.g. IOUs, CCAs, ESPs) so that each entity maintains the 
          electric generation needed to serve its customers including the 
          resources needed for peak demand and planning and operating 
          reserves.

           This bill  prohibits the CPUC from requiring an IOU to meet the 
          resource adequacy needs of all customers on its distribution grid 
          (including ESP and CCA customers) unless there is a failure of 
          the grid which causes a serious threat to system reliability that 
          the ISO could not cure.












           Current law  specifies the procedures governing the formation and 
          operation of CCAs including automatically enrolling customers in 
          the CCA but with notification to customers of the right to 
          opt-out within 60 days of formation.

           This bill  requires that the CCA customer remain enrolled in the 
          event that they move within the jurisdiction and automatically 
          enrolls new residents as customers if they move into the CCA 
          jurisdiction. 

           Current law  requires IOUs to cooperate fully with an entity that 
          is in the process of forming or has formed a CCA so that the CCA 
          can access all electrical load data for the customers they seek 
          to serve or do serve.

           This bill  requires the IOU to release customer data detailing 
          electricity needs and patterns of usage data to a CCA whether 
          that CCA is investigating, pursuing or in formation of a CCA 
          without securing customer consent.
           Current law  permits the CPUC to assess fines against IOUs for 
          violations of rules, orders and statutes concerning the operation 
          of its utility and service to customers.  All fines assessed are 
          paid to the State's General Fund.

           This bill  requires the CPUC to resolve complaints against an IOU 
          for adversely impacting the formation of a CCA within six months 
          and allows the CPUC to allocate all or any portion of a fine 
          levied against an IOU to the CCA.

           Current law  requires a city or county that elects to implement a 
          CCA to do so by ordinance.

           This bill  permits an eligible public agency that will be served 
          by another city or county to only adopt a resolution authorizing 
          that entity to act on its behalf leaving the authorized entity 
          responsible for adopting an ordinance.   

           This bill  permits members of a JPA formed under this section to 
          specify in the JPA agreement that the debts, liabilities and 
          obligations of the JPA will not be attributable to the sponsoring 
          public agencies and prohibits the CPUC from requiring the members 
          of a JPA to be responsible for the JPA debts to an IOU unless the 
          CPUC finds that the JPA agreement is the only reasonable means by 
          which the JPA can establish creditworthiness to pay required 










          charges to the IOU.

           Current orders  of the CPUC restrict customers that return to 
          IOU-provided service from a CCA, from returning to CCA service 
          for three years.

           This bill  permits a customer to switch service back to a CCA 
          within 6 months of rejoining the IOU and strikes the requirement 
          that CCA customers be subject to the same terms and conditions of 
          service as direct access customers.

           Current law  requires CCA customers to reimburse the IOU from 
          which they departed for long-term costs incurred by the IOU 
          attributable to serving those departing customers and with the 
          intent that ratepayers remaining with the IOU be held indifferent 
          to the cost impacts associated with the departing load.  This is 
          commonly referred to as the Cost Responsibility Surcharge (CRS).

           This bill  restricts the IOU costs that can be included in the 
          calculation of the CRS, therefore limiting cost recovery by the 
          IOU, and potentially shifting CCA costs to remaining IOU 
          customers and requires the CPUC to transfer the value of any 
          regulatory requirements embedded in the contracts upon which the 
          calculation is based such as the renewable energy credits.

           Existing law  and orders of the CPUC impose charges on ratepayers 
          within IOU service territories for energy efficiency, research, 
          and other programs and is referred to as the public goods charge.

           This bill  exempts CCA customers from any charges for goods, 
          services or programs that do not directly benefit a CCA customer.

           Current law  permits CCAs to apply to the CPUC to become 
          administrators of energy efficiency programs.

           This bill  establishes a CCA's "right to elect" to become a 
          program administrator for energy efficiency, research, emerging 
          renewables, existing renewables and other programs funded by the 
          PGC and surcharges that fund low-income programs.  The CPUC would 
          also be required to establish an impartial process for making a 
          determination as to whether a CCA may become a third party 
          administrator and prohibits the CPUC from transferring the 
          process or authority to an IOU.  











           This bill  directs the CPUC to establish a code of conduct with 
          specified rules and enforcement procedures to limit the ability 
          of an IOU to use ratepayer funds to market against the formation 
          or operation of a CCA.

           Current law  provides compensation for reasonable advocacy fees to 
          specified groups or persons for representing customer interest in 
          any proceeding at the CPUC if the customer's participation makes 
          a substantial contribution to the proceeding and has been 
          interpreted to include consumer and environmental organization 
          but specifically excludes any state, federal or local government 
          agency.  The program is commonly referred to as intervenor 
          compensation.
           
          This bill  expands the list of persons and entities that are 
          eligible to receive intervenor compensation to include any public 
          agency eligible to form or operate a CCA.

                                       BACKGROUND
           
          CCAs are governmental entities formed by cities and counties to 
          serve the energy requirements of their local residents and 
          businesses. The state Legislature has expressed the state's 
          policy to permit and promote CCAs by enacting AB 117 (Migden, 
          2001) which authorized the creation of CCAs, described essential 
          CCA program elements, required the state's IOUs to provide 
          certain services, and established methods to protect existing 
          utility customers from liabilities that they might otherwise 
          incur when a portion of the IOU's customers transfer their energy 
          services to a CCA.

          Cities and counties have become increasingly involved in 
          implementing energy efficiency programs, advocating for their 
          communities in power plant and transmission line siting cases, 
          and developing distributed generation and renewable resource 
          energy supplies. The CCA program takes these efforts one step 
          further by enabling communities to purchase power on behalf of 
          the community.

          Although adopted several years ago, to date only one region has 
          been successful in implementing a CCA.  Several cities joined 
          together in Marin County and formed, under a joint powers 
          authority, "Marin Clean Energy."   The CCA program is new in 
          California and there is little experience with such a program 










          anywhere. The CPUC has sought to anticipate every contingency on 
          the one hand and permit some flexibility on the other with the 
          expectation that the IOUs and CCAs may be able to tailor 
          operational arrangements according to circumstances in ways that 
          promote program efficiency and fairness. The CPUC must adopt 
          rules for the IOU in order that it may provide adequate service 
          to the CCA and its customers while simultaneously protecting IOU 
          bundled customers and grid reliability.  Nothing in the statute 
          directs the CPUC to regulate the CCA's program except to the 
          extent that its program elements may affect utility operations 
          and the rates and services to other customers.

          Deregulation - California's experiment with deregulation was 
          launched in 1996 when the Legislature passed AB 1890 (Brulte, 
          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 residents. 

          Before the energy crisis in 2001, non-IOU providers (direct 
          access providers) had enrolled customers but then failed to 
          provide the power ordered.  The customers returned to the IOUs 
          for service but the utilities did not have the electric 
          generation resources to serve those customers because they had 
          left IOU service.  In response the Legislature mandated that the 
          IOUs maintain resource adequacy for current customers and those 
          customers that could return to IOU service.  This experience has 
          guided the CCA law and rules adopted by the CPUC which are the 
          subject of this bill. 

          IOU Responsibility Does Not End - A critical driver of CCA and 
          direct access policies is that any CCA or DA customer can 
          terminate service on a moment's notice and return to IOU service. 
          Should they do so, or should the DA or CCA provider fail to 
          provide sufficient power, the IOU is always and ultimately 
          responsible to provide that power.

                                        COMMENTS
           
              1.   Author's Purpose  .  SB 790 strengthens existing law by 










               clarifying, amending and adding key provisions that enable 
               CCA to function as originally intended, foster fair market 
               competition, and allow jurisdictions to pursue CCA without 
               undue barriers and excessive burdens.  

               Much has been learned from the experience of communities 
               that have unsuccessfully attempted community choice 
               aggregation in the last few years, and from Marin County, 
               the only county that has succeeded in launching a CCA in the 
               state of California. That experience has demonstrated 
               certain deficiencies in existing law that has rendered CCA 
               excessively difficult to implement and operate.  The 
               California Public Utilities Commission recently found that 
               utility opposition, coupled with lack of clarity regarding 
               certain statutory provisions, have forced some CCA efforts 
               to be abandoned.  This has had the damaging effect of 
               discouraging other communities from considering CCA, thus 
               impeding the environmental, consumer choice, and economic 
               benefits associated with community aggregation. 

               SB 790 seeks to level the playing field for local 
               governments seeking to establish a CCA program. A genesis of 
               this bill has been PG&E's atrocious behavior surrounding the 
               establishment of the Marin Energy Authority and its CCA 
               program Marin Clean Energy. PG&E representatives attending 
               local hearings commonly misrepresented how the CCA mechanism 
               works, commonly stated that taxpayers were liable for the 
               costs of failed CCA programs despite CPUC decision 
               08-04-056, and the utility was reprimanded for soliciting 
               opt-outs from outside the official process and for implying 
               that to receive public good charge funded energy efficient 
               benefits, customers must opt out of CCA.

              2.   Broad Policy Impacts/Legislative Ratemaking  .  The 
               foundation of the CCA program as designed by the Legislature 
               was to allow cities and counties to directly serve the load 
               of their electrical customers.  However, the Legislature 
               also mandated that the departure of those CCA customers have 
               no financial impact on the cost of service to the remaining 
               IOU bundled service customers/ratepayers and that grid 
               stability and reliability be maintained.  

               The sponsors of this bill opine that the CPUC should also 
               protect CCA customers and encourage the formation of CCAs.  










               They additionally argue that the mechanisms the CPUC has 
               established to ensure that cost indifference and grid 
               reliability are actually barriers to the formation of CCAs 
               because of the costs that must be borne by CCA customers 
               which are paid back to the IOUs.  Ultimately these charges 
               determine the viability of CCAs.  The intent of this bill is 
               to modify the cost calculations accomplished by the CPUC to 
               reduce the cost impacts on CCA customers.  

               The basis for the costs imposed by the CPUC on CCA customers 
               may in fact be onerous; however those costs imposed could 
               also be too low.  The analysis necessary to determine cost 
               impacts and appropriate rates is one that the Legislature 
               has delegated to the CPUC where the necessary deliberative 
               and thoughtful analysis can be achieved.  This bill imposes 
               restrictions on that analysis for which the impacts are 
               unknown.

              3.   Resource Adequacy  . It is a fundamental and mandated 
               responsibility of the CPUC to look forward and ensure that 
               there are sufficient generation resources available to meet 
               the demands of the electrical grid.  The critical need for 
               this analysis and procurement was made evident by the 
               electricity crisis in 2001 when the state lacked sufficient 
               generation to "keep the lights on," the market was 
               manipulated, and the states IOU customers suffered rolling 
               blackouts.  

               This bill modifies the complex analysis and long term 
               procurement planning that forms the basis of resource 
               adequacy which serves IOU, CCA, and DA customers and instead 
               allows the CPUC to order the IOUs to obtain generation 
               resources for CCA and DA customers only after the electric 
               grid has failed and that failure has "caused a serious 
               threat to system or local reliability" that could not be 
               remedied by the ISO - in essence only after the lights go 
               out.  The author and committee should consider striking 
               these restrictions to ensure that system reliability is 
               maintained and arbitrary limits are not placed on the CPUC 
               which result in cost-shifting to IOU ratepayers.

              4.   Cost Responsibility Surcharge  .  This cost calculation is 
               designed to ensure that the departing customers of the CCA 
               do not leave the remaining ratepayers of the IOUs with 










               additional costs as a result of long term contract 
               commitments made to serve those IOU customers. It is also 
               designed to reimburse the IOU for the services that continue 
               to be provided on behalf of CCA customers.  Such costs 
               include:

                     power contracts and bonds entered into by DWR during 
                 the energy crisis;
                     utility power costs, including those of utility 
                 retained generation, purchased power and other commitments 
                 in approved resource plans;
                     Competition Transition Charge and historic revenue 
                 undercollections and credits applicable to the customer at 
                 the time the CCA transferred the customer;
                     utility transition, implementation and transaction 
                 costs - estimating, allocation and setting cost allocation 
                 mechanisms for creating and maintaining the CCA program; 
                 and
                     meter, billing and distribution costs.

               The biggest factor affecting the CRS is contracts and, 
               regardless of the length of those contracts, the number of 
               years of each contract that the CPUC ascribes as a stranded 
               cost due to customer transfer from the IOU to the CCA.  This 
               bill limits the number of years that the costs of these 
               contracts can be assigned to departing CCA customers.  The 
               author and committee should consider eliminating these 
               provisions to ensure that arbitrary limits are not placed on 
               the CPUC's cost analysis which result in cost-shifting to 
               IOU ratepayers.

              1.   Customer Switching  .  The CPUC has established rules for 
               CCA and DA customers which fall under the heading of "coming 
               and going" rules.  Once a customer chooses service from a 
               CCA or DA they are free to return to IOU service at any 
               time.  However once they return to the IOU, they are 
               prohibited from switching back to CCA or DA service for 
               three years.  The CPUC has deemed this restriction a 
               necessity due to the time and complexity of procurement and 
               thus to ensure grid stability and cost indifference.  This 
               bill proposes to revise the switching rule from three years 
               down to six months but there is no justification for the 
               change.  Additionally the bill eliminates language which 
               requires the CPUC to use the same terms and conditions for 










               CCA customers as DA customers.  In effect both programs have 
               the same impact on the remaining IOU ratepayers and IOU 
               structure.  Using the same rules for customers in both 
               programs allows for ease in administration and there is no 
               indication that the rules are not justified.  The author and 
               committee should consider eliminating the six-month 
               switching rule ensure that arbitrary limits are not placed 
               on the CPUC's analysis of resource adequacy and grid 
               reliability needs and reinstate the provision requires CCA 
               and DA customers to be subject to the same terms  and 
               conditions.

              2.   Eligible Public Agencies  .  This bill expands the eligible 
               public agencies that can form a CCA from cities, counties 
               and JPAs of cities and counties, to any public agency that 
               has the authority to generate or deliver electricity within 
               its jurisdiction.  This language appears to affect water 
               agencies and local irrigation districts but could apply more 
               broadly.  The need for this expansion is not apparent.  

               Every ratepayer in every IOU territory is in a city or 
               county so every ratepayer can potentially be covered by a 
               CCA.  Additionally city and county boundaries are clear, 
               governing boards known, and operate with a greater degree of 
               transparency.  This bill allows expansion of CCAs to 
               agencies with jurisdictions that overlap cities and counties 
               and to non-city and county jurisdictions which overlap each 
               other.  The day-to-day business of these non-city and county 
               agencies is often not monitored very closely by the public 
               or media.  The author and committee should consider 
               eliminating the authority for CCA expansion to non-city and 
               county agencies to ensure transparency of actions, public 
               accountability, and prevent overlapping customer territories 
               between multiple CCAs and the IOU.

              3.   Customer Data Confidentiality  .  CCA proponents argue that 
               it has been difficult to obtain data from the IOU after 
               formation but acknowledge that they are unsure whether that 
               is a result of a technical challenge for the IOU or an 
               intentional obstruction. Regardless, CCA should have data. 
               However the CPUC has already considered the issue of data 
               access in its 2004 and 2005 rulemakings and has ruled that 
               the CCA shall have full access to the data as currently 
               provided by law which "does not permit the utilities to 










               second guess a CCA's request for relevant information." The 
               utility's tariffs therefore must include a provision that 
               permits CCAs to access all relevant customer information."  
               The author and committee should consider striking these 
               provisions since the data is already required and the issue 
               appears to be one requiring enforcement by the CPUC or just 
               working out the kinks in administering a new program by the 
               IOU. 

              4.   Marketing/Ratepayer Funds  .  The formation of CCAs has 
               been fraught with controversy at the local level and 
               subjected one utility to criticisms that it was using 
               ratepayer funds to unfairly impede the formation of CCAs.  
               In response this bill requires the CPUC to establish a code 
               of conduct, associated rules and enforcement procedures to 
               govern the conduct of IOUs relative to the formation and 
               operation of CCAs, and prohibit the use of ratepayer funds 
               or ratepayer-funded services to interfere with the formation 
               and operation of a CCA. 

               Concern has been expressed by the Coalition of California 
               Utility Employees that the restrictions on the use of 
               ratepayer funds in this section could be construed as 
               limiting the ability of utility labor organizations to 
               participate in the public process concerning the formation 
               and operation of CCAs at the local level since the origin of 
               their funds are the salaries of their members which are 
               derives from ratepayer funds as well.  They seek an 
               amendment to ensure against any impact on their unions.  

              5.   Intervenor Compensation  .  The PUC processes most 
               proceedings much like a court, relying on judges, attorneys, 
               and expert witnesses before making decisions. Most 
               proceedings require public hearings to be held with written 
               and oral testimony, as well as opportunities for cross 
               examination. Opening and reply briefs are filed, draft 
               decisions are issued, comments are received from parties, 
                                   and final decisions issued. Participation in these cases can 
               be complicated, time consuming, and relatively expensive. 

               To encourage participation in PUC proceedings, current law 
               provides that customers and that their representatives may 
               be compensated for expenses related to contributions to CPUC 
               decisions via the intervenor program. Compensation is 










               allowed if the CPUC finds the participant substantially 
               contributed to the PUC's decision and the participant could 
               not otherwise afford to take part without undue hardship. 
               Any intervenor compensation ordered by the CPUC is paid by 
               the IOU which is subject to the hearing and will ultimately 
               be included in consumer rates. These statutory provisions 
               allow for compensation to actual utility customers, 
               representatives of those customers, or groups organized who 
               represent residential customer interest. Those same statutes 
               specifically prohibit compensation to state, federal, or 
               local government agencies.

               This bill expands the entities eligible for intervenor 
               compensation to include current CCAs and government agencies 
               seeking to establish a CCA. The basis for the program is 
               that parties should not be precluded from the complexity of 
               CPUC proceedings if it would impose a financial hardship to 
               do so.  The author and committee should consider, to ensure 
               indifference for ratepayers in the IOU territories, striking 
               this expansion of intervenor compensation.
              6.   Access to Public Goods & Public Purpose Charges  .  Under 
               current law the CPUC is directed to establish rules to allow 
               a CCA administrator to apply to administer energy efficiency 
               programs for their customers.  The sponsor reports that CPUC 
               has left it to the CCA to "work it out" with the IOU which 
               translates to nothing happening.  As a remedy, this bill 
               clearly directs the CPUC to establish an impartial process 
               for determining whether a CCA should be permitted to 
               administer energy efficiency programs.  

               However, the bill goes further by also establishing a "right 
               to elect" for a CCA to become a program administrator and to 
               restrict charges on CCA customers which do not directly 
               benefit those customers which is ambiguous.  These 
               provisions could be interpreted as restricting CSI 
               collections, funding for public interest research, and other 
               programs which have a specialized purpose including charges 
               which offset the cost of electricity for low-income 
               customers.  The bill goes further to include research and 
               renewable programs which are administered by the CEC and are 
               also going to sunset at the end of this year.  The author 
               and committee should consider eliminating these provisions 
               and limiting CCA program administration to energy efficiency 
               programs. 











              7.   Related Legislation  . AB 976 (I. Hall) prohibits a CCA 
               from procuring electricity or energy services from any 
               entity that provided any analysis, advice, consultation, or 
               other services to the community choice aggregator to aid in 
               its formation.  Set for hearing in the Assembly Utilities 
               and Commerce Committee May 4, 2011.

                                       POSITIONS
           
           Sponsor:
           
          Sierra Club California
          San Francisco Public Utilities Commission

           Support:
           
          AARP
          California State Association of Counties
          Climate Protection Campaign
          League of California Cities
          Local Clean Energy Alliance of the Bay Area
          Marin County council of Mayors and Council Members
          Marin Energy Authority
          San Francisco Local Agency Formation Commission
          Sonoma County Water Agency
          Sonoma County Conservation Action
          The Utility Reform Network

           Oppose:
           
          Coalition of California Utility Employees (unless amended)
          
          Kellie Smith 
          SB 790 Analysis
          Hearing Date:  April 28, 2011