BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 790|
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                                 THIRD READING


          Bill No:  SB 790
          Author:   Leno (D)
          Amended:  5/11/11
          Vote:     21

           
           SENATE ENERGY, UTILITIES & COMM COMMITTEE  :  6-4, 05/03/11
          AYES:  Berryhill, Corbett, DeSaulnier, Pavley, Rubio, 
            Simitian
          NOES:  Padilla, Fuller, Strickland, Wright
          NO VOTE RECORDED:  De León

           SENATE APPROPRIATIONS COMMITTEE  :  6-2, 05/26/11
          AYES:  Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
          NOES:  Walters, Runner
          NO VOTE RECORDED:  Emmerson


           SUBJECT :    Electricity:  community choice aggregation

           SOURCE  :     Marin Energy Authority
                      Sierra Club California
                      San Francisco Public Utilities Commission


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

           ANALYSIS  :    Existing law:

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          Electricity service in the state is generally provided by 
          investor owned utilities or publicly owned utilities. In 
          addition, electric service providers are allowed to sell 
          electricity directly to non-residential customers, using 
          the transmission and distribution system owned by the 
          utilities. The amount of electricity provided by electric 
          service providers is capped. In addition, current law 
          allows cities and counties to elect to provide electricity 
          to some or all of the residents in their jurisdiction, 
          through a process known as community choice aggregation. 
          There are procedural requirements on cities and counties 
          that set up community choice aggregation plans, but there 
          is no general cap on the amount of electricity service they 
          may, in aggregate, provide. To date, only one successful 
          community choice aggregation plan has been set up. Under 
          community choice aggregation, customers can opt out of 
          joining the plan and continue to receive retail electricity 
          service from their utility.

          SB 790 makes a variety of changes to the statutes governing 
          community choice aggregation, with the intent to make it 
          easier for local governments to set up community choice 
          aggregation plans.

          This bill:

          1.  Authorizes the Kings River Conservation District, the 
          Sonoma County 
               Water Agency and any other local agency that is 
          authorized to generate 
               and deliver electricity to enter into community choice 
          aggregation. The 
               bill requires more sharing of information on customer 
          electricity demand 
               between incumbent utilities and local governments 
          considering 
               community choice aggregation. The bill limits the 
          liability of local 
               governments that participate in community choice 
          aggregation through a 
               joint powers authority. The bill specifies how charges 
          imposed on 
               consumers participating in community choice 
          aggregation for public 







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               purpose programs shall be charged and how those 
          charges can be spent.

          2.  Specifies that if the Public Utilities Commission (PUC) 
          authorizes or 
               orders and electrical corporation to obtain generation 
          resources, the 
               commission shall ensure that those resources meet a 
          system or local 
               reliability need in a manner that benefits all 
          customers of the electrical 
               corporation in proportion to the costs recovered from 
          those ratepayers.  

          3.  Requires the PUC to open a rulemaking to develop a code 
          of conduct for 
               investor owned utilities when a local government is 
          considering  
               community choice aggregation. The bill limits the 
          Public Utilities 
               Commission's ability to impose charges on customers 
          electing to 
               participate in community choice aggregation, to offset 
          costs already 
               incurred by their utility (such as for long-term 
          electricity generation 
               contracts purchased to meet projected customer demand 
          or resource 
               adequacy requirements).  

          The Public Utilities Commission indicates that it will need 
          three additional, ongoing positions to adopt rules and 
          oversee the implementation of the new requirements, 
          totaling about $325,000 per year.

          In addition to the direct cost to the state from the bill, 
          there are potential indirect costs to state agencies as 
          electricity ratepayers. Because the bill changes the rules 
          for allocating costs between community choice aggregation 
          customers and customers of the investor owned utilities, it 
          is possible that there will be some cost shifting between 
          ratepayers. To the extent that costs are shifted to 
          investor owned utility customers, the state will share in 
          those costs. The extent of this impact is unknown.







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           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 







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          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 

          According to the author's office, 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 







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          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.

           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: Passed Assembly Appropriations Committee 17-0, May 
          18. 2011.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  Yes

          According to Senate Appropriations Committee: 

                                          Fiscal Impact (in 
          thousands)

           Major Provisions                          2011-12         
           2012-13              2013-14          Fund
           Updating regulations and                $325           $325 







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             $325                            Special *
             providing oversight
          Costs to state agencies                 Unknown        
          Various
             due to higher electricity costs

          * Public Utilities Commission Utilities Reimbursement 
          Account.

          The Public Utilities Commission indicates that it will need 
          three additional, ongoing positions to adopt rules and 
          oversee the implementation of the new requirements, totally 
          about $325,000 per year.

          In addition to the direct cost to the state from the bill, 
          there are potential indirect costs to state agencies as 
          electricity ratepayers.  Because the bill changes the rules 
          for allocating costs between community choice aggregation 
          customers and customers of the investor owned utilities, it 
          is possible that there will be some cost shifting between 
          ratepayers.  To the extent that costs are shifted to 
          investor owned utility customers, the state will share in 
          those costs.  The extent of this impact is unknown.  

           SUPPORT  :   (Verified  5/27/11)

          Marin Energy Authority (co-source)
          Sierra Club California (co-source) 
          San Francisco Public Utilities Commission (co-source) 
          AARP
          California State Association of Counties
          City of Petaluma
          City of Richmond
          Climate Protection Campaign
          Kings River Conservation District
          League of California Cities
          Local Clean Energy Alliance of the Bay Area
          Marin County Board of Supervisors
          Marin County Council of Mayors and Council Members
          San Francisco Local Agency Formation Commission
          Sustainable Mill Valley
          Sonoma County Water Agency
          Sonoma County Conservation Action
          Sonoma County Regional Climate Protection Authority







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          The Utility Reform Network
          Town of San Anselmo

           ARGUMENTS IN SUPPORT  :    Kings River Conservation District 
          (KRCD) writes in support of SB 790.  In our effort to 
          implement a Community Choice Aggregation (CCA) in the San 
          Joaquin Valley, KRCD experienced numerous obstacles.  SB 
          790 would promote competition by lifting as many of the 
          barriers that have prevented local agencies including KRCD 
          and its surrounding communities from implementing CCA in 
          their regions.  SB 790 would also expand authorization to 
          implement CCA to limited number of special districts, 
          including KRCD, which are authorized and qualified to 
          generate and deliver electricity.  SB 790 will help bring 
          to fruition the consumer choice, environmental and economic 
          benefits associated with and originally envisioned in 
          community aggregation programs. 


          RM:rm  5/31/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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