BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 687 - Hernández Hearing Date:
June 18, 2013 A
As Amended: May 24, 2013 FISCAL B
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DESCRIPTION
Current law authorizes individual retail non-residential end-use
customers to acquire electric service from other providers in
each electrical corporation's (IOU) distribution service
territory, up to the historically highest amount of
kilowatt-hours (kWh) of annual DA sales for each utility.
Increases authorized in 2009 require a phase-in period for new
customer enrollments of not less than three years and not more
than five years. The program is commonly referred to as "direct
access" or DA. (Public Utilities Code 365.1)
This bill requires IOUs to, in allocating additional DA
transactions, give priority to entities that are remediating
groundwater which has been identified as contaminated and, that
the United States Environmental Protection Agency (US EPA) has
placed on its Superfund list, or to public or private water
agencies that serve disadvantaged or severely disadvantaged
communities. Eligible entities would be required to use the
funds saved on electricity purchases as a result of DA
subscription for the treatment or remediation of contaminated
groundwater.
BACKGROUND
Deregulation - In 1996 the California State Legislature led the
nation by deregulating the sale of electricity to residential
and non-residential customers. The reform was historic and
intended to transition the state to a more competitive
electricity market structure that allowed its citizens and
businesses to achieve the economic benefits of industry
restructuring, create a new market structure that provided
competitive, low cost and reliable electric service, provide
assurances that electricity customers in the new market would
have sufficient information and protection, and preserve
California's commitment to developing diverse, environmentally
sensitive electricity resources. Those goals were not achieved.
The practical effect of the program was that customers could buy
electricity direct from private sector wholesale sellers and use
the IOU only for distribution and transmission services. As a
consequence the vertical monopoly of electricity delivery
provided by heavily regulated electric utilities was upended and
those utilities were largely required to sell off power plants
and transfer management of their transmission systems to the
newly created California Independent System Operator. Within a
few years the state suffered electricity shortages which
resulted in rolling blackouts, skyrocketing prices, and bankrupt
or nearly bankrupt utilities.
The Electricity Crisis - The effects of California's
deregulation debacle have been largely managed. Customers have
figured out how to cope with much higher electric rates, the
IOUs have been returned to financial health, and adequate
electric supplies have been procured. This period of relative
calm is probably attributable to a number of actions including
electricity purchases through long-term contracts by the
Department of Water Resources (for which ratepayers continue to
pay the costs), the freezing of DA, better coordination of
powerplant outages, longer term electricity contracting by the
IOUs, and the bankruptcy of Enron and the imprisonment of many
of its officers, to name the most obvious. However, a
comprehensive analysis of the causes of the electricity crisis
and the steps taken to avert a repeat has not been performed by
the CPUC. California will continue to rely on the federal
government, though the Federal Energy Regulatory Commission, to
intervene if electricity markets malfunction again.
Unfortunately, in 2001 our reliance on the FERC was badly
misplaced.<1>
Direct Access Today - During the electricity crisis DA
enrollment was suspended but preexisting contracts were
permitted to continue in effect accounting for approximately six
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<1> See, for example, Attorney General's Energy White Paper, A
Law Enforcement Perspective on the California Energy Crisis ;
Attorney General Bill Lockyer, April 2004.
percent of the IOU's annual retail electric sales. In 2009,
after months of negotiation, comprehensive legislation
addressing many of the ongoing impacts of the electricity crisis
was adopted. Among the provisions of SB 695 (Kehoe) was an
increase in DA transactions which roughly doubled the permitted
capacity of the program.
The SB 695 cap was intended to limit any potential risk
associated with reopening of DA by eliminating uncertainty
associated with load migration. The adopted phase-in schedule
provided lead time for the IOUs to account for small shifts in
load and thereby avoid unwarranted cost shifting and stranded
costs.
In 2010, the CPUC adopted a four-year phase-in period with
annual caps which was deemed to reasonably accommodate the
utilities' long-term procurement and resource planning needs,
while providing for timely implementation of new DA load
consistent with the provisions of SB 695. The phase-in was
complete this year and DA is now fully subscribed. The new load
eligible for DA doubled enrollment in the IOU territories and
the program now serves approximately 12% of the entire electric
load served by those utilities.
The ongoing process to be followed if and when additional
capacity becomes available under the DA load cap is a lottery
process which is intended to facilitate a level playing field.
There is a wait list for the program which was developed by
assigning random numbers to each interested customer which is
placed on a wait-list in the order assigned.
COMMENTS
1. Author's Purpose . Public entities cleaning up polluted
superfund groundwater and many public drinking water
systems operate 365 days a year with especially high costs
incurred during the summer power demand peak period. Some
community water systems cannot afford treatment or lack
alternative water sources, and have served water that
exceeds the public drinking water standards. In a 2013
report to the Legislature, the State Water Resource Control
Board found that 680 community water systems rely on a
contaminated groundwater source. Of those water systems,
265 have served water that did not meet the minimum public
drinking water standards. This measure ensures that public
entities cleaning up environmental pollution can defray
costs to advance the restoration of hazardous waste sites
to safe and productive use. This provides for the long-term
protection of human health and the environment.
2. Limits of Direct Access . Enrollment in the DA program
has been capped due to the legacy of the energy crisis and
market manipulations but also because the business model
under the DA program is generally not reflective of the
state's clean energy goals. Entities which serve DA
customers are referred to as energy service providers
(ESPs) which are required to comply with the Renewables
Portfolio Standard. However, most ESPs purchase power on
the short-term, spot market which tends to be "left-over"
electricity of myriad out-of-state, fossil-fueled,
generation facilities not subject to California's air
quality standards. The power is also referred to as system
power.
3. Disadvantaged Communities . This bill permits any
Superfund site as well as any publicly or privately held
water companies that serve a disadvantaged community (which
is not defined in this bill) to have priority as a DA
subscriber in the event that any subscribers drop from the
program or new enrollment is authorized by the Legislature.
This spring the CalEPA released the CalEnviroScreen 1.0 to
identify these communities. It is a science-based tool
that identifies the California communities most burdened by
pollution from multiple sources and most vulnerable to its
effects. According to the EPA, "Every major region of the
state except the rural North has some communities that
ranked among the highest 10 percent for combined burdens
and vulnerabilities from pollution, other environmental
factors and population characteristics. Approximately half
of the ZIP codes that ranked in the top 10 percent are in
the greater Los Angeles area, including the Inland Empire.
The San Joaquin Valley contains another 29 percent of the
most vulnerable communities.
This bill does not define a disadvantaged community or
seriously disadvantaged community. In theory every area of
the state is disadvantaged in some way by air quality or
other adverse environmental impacts. To ensure that the
priority called for in this bill is limited to those
communities most impacted, the committee may wish to
consider amending the bill to define those communities as
some percentage of the highest burdens and vulnerabilities
as identified by CalEnviroScreen.
4. Cutting in the Front of the Line . Enrollment in the DA
program is capped to approximately 12% the state's electric
load in the territories of the state's three largest IOUs.
It is fully subscribed. Any additional availability of DA
will involve customers on DA returning to bundled utility
service or a separate action of the Legislature to increase
the statutory cap. Because of the lower cost of the system
power under the DA program demand for subscriptions is much
greater than available supply and each of the three IOUs
have waiting lists. In the event that a current DA
subscriber drops out of the program, the IOU, by lottery,
picks new subscribers for the supply of kilowatt hours that
have been made available.
The wait list for the three IOUs combined has more than 850
customers with more than 10,000 electric accounts for a
total demand of 2,800 gigawatt hours.
Even if the bill is narrowed to water entities serving some
smaller percentage of disadvantaged communities, it is
important to note that the priority enrollment called for
in this bill will likely ensure that any new capacity in
the program is strictly limited to those water entities.
This will effectively preclude any other private or public
IOU customer from qualifying for DA in the future also make
it unlikely that any of those customers on the wait list
will ever be enrolled.
5. Administrative Impact . The CPUC reports that the bill
would "require substantial changes to existing DA programs,
since it requires the CPUC to ensure that a specific class
of potential DA service customers has priority over other
direct access service customers."
6. Double Referral . Should this bill be approved by the
committee, it will be re-referred to the Senate Committee
on Environmental Quality for its consideration.
ASSEMBLY VOTES
Assembly Floor (51-22)
Assembly Appropriations Committee (12-5)
Assembly Environmental Safety and Toxic Materials Committee
(5-1)
Assembly Utilities and Commerce Committee (9-5)
POSITIONS
Sponsor:
San Gabriel Basin Water Quality Authority
Support:
Central Basin Municipal Water District
San Gabriel Valley Municipal Water District
San Gabriel Valley Water Association
Three Valleys Municipal Water District
Walnut Valley Water District
Oppose:
California Manufacturers & Technology Association
Kellie Smith
AB 687 Analysis
Hearing Date: June 18, 2013