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 6 5 6 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