BILL ANALYSIS                                                                                                                                                                                                    Ó          1





                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                 ALEX PADILLA, CHAIR
          

          SB 656 -  Wright                                  Hearing Date:   
          April 30, 2013             S
          As Amended:         April 22, 2013           FISCAL       B
                                                                        
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                                      DESCRIPTION
           
           Current law  authorizes some retail end-use customers of an  
          electrical corporation (IOU) to purchase electric service  
          directly from non-utility providers (energy service providers or  
          ESPs), a program commonly referred to as Direct Access (DA).   
          Participation is capped as a percentage of total electric load  
          based on a specified formula.

           Current law  requires ESPs to register with the California Public  
          Utilities Commission (CPUC) which is required to make specified  
          information regarding DA service available to the public.  

           This bill  requires the CPUC to update information on direct  
          access every six months.  

           This bill  strikes the requirement that the Office of Ratepayer  
          Advocate (now Division of Ratepayer Advocates, DRA) within the  
          CPUC prepare information guides and tools to help customers  
          evaluate competing service options under DA.

                                      BACKGROUND
           
          Deregulation - In 1996 the California State Legislature led the  
          nation by deregulating the sale of electricity to  
          non-residential customers and a few residential customers  
          through a program commonly referred to as DA.  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 non-residential  
          customers could buy electricity direct from private sector  
          wholesale sellers and use the IOU only for distribution and  
          transmission services.  As 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 of 2001 resulted in a suspension of the  
          program but any customer enrolled at the time was permitted to  
          remain with their ESP.  In 2009, the cap on DA enrollment was  
          increased but only for non-residential customers.  

                                       COMMENTS
           
              1.   Author's Purpose  .  The author reports that the  
               requirement for the DRA to assist customers in evaluating  
               DA options was created in 1997 as part of legislation that  
               deregulated California's retail electric market.  At the  
               time, policymakers were hoping that market competition  
               would bring in multiple market players and dramatically  
               reduce electric generation prices.  The cornerstone of this  
               policy was the creation of DA, which would be available to  
               all customer classes, including small commercial and  
               residential.  Some policymakers were concerned that the  
               smaller consumers would need some help in navigating the  
               multiple providers competing to provide them with service,  
               and as a result, section 392.1(c) was created.  The  
               experiment in Direct Access and wholesale electric  
               deregulation was a disaster, and completely unraveled in  
               the energy crisis of 2001, when AB 1x was enacted which  
               froze direct access enrollment.

               The requirements of 392.1(c) are no longer required.   
               Direct Access firms are not competing to sign up  
               residential accounts, and therefore, there is no need for  










               the DRA to "help [customers] make informed choices."

              2.   Technical Clean-up  .  It has been reported that there  
               were approximately 18,000 residential DA customers by 2001  
               when the program was suspended for all customers.  Since  
               the time, through attrition, residential participation has  
               dropped by a third.  The Legislature authorized an increase  
               in the program in 2009 but only for non-residential  
               customers.  This bill reflects actual practice of the CPUC  
               and DRA due to the suspension of DA imposed on residential  
               customers as a result of the energy crisis of 2001.  As  
               bill progresses, the author may also want to consider  
               striking the necessity of a six-month update for the CPUC  
               report since activity in the DA program is minimal.  

                                       POSITIONS
           
           Sponsor:
           
          Author

           Support:
           
          Division of Ratepayer Advocates

           Oppose:
           
          None on file.

          Kellie Smith 
          SB 656 Analysis
          Hearing Date:  April 30, 2013