BILL ANALYSIS Ó 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE ALEX PADILLA, CHAIR SB 790 - Leno Hearing Date: May 3, 2011 S As Amended: April 14, 2011 FISCAL B 7 9 0 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 (electric 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. Prior Hearing . The Committee took testimony on this bill at its April 28th hearing at which time the author agreed to take amendments to address the issues raised in the committee's analysis in below comments numbered 8, 9 and 10. In response to other issues raised the author presented alternative language to address some issues but that language does not change the analysis of the impacts of this bill particularly with regard to resource adequacy, grid reliability and cost indifference to IOU ratepayers all of which are the foundation of the CCA authorization. 2. 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. 3. 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. a. 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. b. 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. a. 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. 1. 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. 2. 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. 3. 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. 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. Nothing in this division prohibits payments pursuant to an agreement authorized by the national Labor Relations Act, 29 USC Section 151, or payments permitted by the Labor Management Cooperation Act of 1978, 29 USC 175 (a) and 29 USC 186 (c) (9). Nothing in this division restricts any use permitted by federal law of money paid pursuant to these provisions of federal law. 5. Customer Enrollment . When a CCA is formed all IOU customers within the boundaries of the CCA in the territory are automatically enrolled in the CCA but informed of their right to opt out of the program. The law is silent on how customers should be treated who move within the boundaries or from outside the boundaries of the CCA. This bill proposes that the CCA customer remain a CCA customer if they move within the boundaries unless they affirmatively change their subscription. Someone just moving into the area would be automatically subscribed as well. The author and committee should consider clarifying this provision so that a customer moving into the boundaries is also informed of their right to opt out. Note: the author agreed to this amendment at the committee's April 28th hearing. 6. CPUC Fining Authority . Since CCAs were authorized by the Legislature in 2001 CCA advocates report that PG&E has made every effort to thwart formation throughout its service territory. To address what the proponents label as egregious behavior by PG&E which has extensive ratepayer funds at its disposal to aid in that effort, this bill establishes a code of conduct for IOUs which restricts to the use of ratepayer funds to work against CCA formation. The bill also permits the CPUC to direct any fines collected as a result of IOU actions to the CCA to be used for the benefit of CCA customers. Under current law all fines assessed by the CPUC go to the state's General Fund. Directing fines to the General Fund can prevent bias in the fining of an entity that may occur if any party, including the CPUC, could benefit from those fines. The author and committee should consider eliminating this provision. Note: the author agreed to this amendment at the committee's April 28th hearing. 7. 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. Note: the author agreed to this amendment at the committee's April 28th hearing. 8. 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. Status: 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 (TURN) Oppose: Coalition of California Utility Employees (unless amended) San Diego Gas & Electric Company (unless amended) Kellie Smith SB 790 Analysis Hearing Date: May 3, 2011