BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 790| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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: CONTINUED SB 790 Page 2 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 SB 790 Page 3 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. SB 790 Page 4 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 SB 790 Page 5 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 SB 790 Page 6 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 SB 790 Page 7 $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 SB 790 Page 8 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 **** END ****