BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 895 (Rendon) - Utility rate refunds: energy crisis
litigation.
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|Version: February 26, 2015 |Policy Vote: E., U., & C. 10 - |
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|Urgency: No |Mandate: No |
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|Hearing Date: July 13, 2015 |Consultant: Marie Liu |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 895 would require that proceeds of any claims
arising out of the energy crisis of 2000-02 be deposited into
the Ratepayer Relief Fund, subject to appropriation by the
Legislature, and would prohibit the California Public Utilities
Commission (CPUC) from expending or distributing the proceeds of
any claims.
Fiscal
Impact:
Increased revenues, potentially in the billions of dollars, to
the Ratepayer Relief Fund (special).
Potential costs to the General Fund for litigation costs for
the Attorney General (AG) and the Department of Water
Resources (DWR) associated with energy crisis.
Unknown costs to the state, as a ratepayer, (General Fund and
various special funds) to the extent that settlement monies
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are not deposited in the Electric Power Fund to repay bonds
and long-term power contracts entered into by DWR
Potential impacts to settlement amounts.
Background: In the latter half of the 1990s, the state restructured its
electricity markets to provide more competition. These efforts
were codified in AB 1890 (Brulte, Chapter 854, Statutes of
1996). Soon thereafter, in 2000 and 2001, the state experienced
extraordinary wholesale electricity prices in what has become
known as the California electricity crisis. Pacific Gas and
Electric declared bankruptcy; Southern California Edison nearly
did so.
Subsequent investigation revealed numerous instances of illegal
market manipulation on the part of electricity suppliers. The
state - through the CPUC and the now-defunct Energy Oversight
Board and, subsequently, the Attorney General - has been party
to litigation related to the energy crisis. Ligation is
continuing, and given a recent US Supreme Court ruling that
found that energy companies can be sued under state antitrust
laws for illegally manipulating natural gas prices during the
energy crisis. This ruling may result in several more years of
litigation, and potentially millions, if not billions, in
additional settlement monies to the state and ratepayers. The
state has received approximately $5.3 billion in settlements to
date.
Existing law requires that any energy settlement agreement
entered into by the AG, after reimbursing the AG's litigation
and investigation expenses, shall direct settlement funds
according to the following priority: (1) to reduce ratepayer
costs of those utility ratepayers harmed by the actions of the
settling parties, including through the reduction of rates or
the reduction of ratepayer debt obligations incurred as a result
of the energy crisis, and (2) deposit into the Ratepayer Relief
Fund. (GOV §16428.3)
Existing law also requires that all funds recovered on behalf of
DWR, after deduction of litigation and investigation expenses,
shall be deposited in the Electric Power Fund, which is used to
pay down bonds issued for DWR to procure electricity during the
crisis and to pay down long-term contracts. (GOV §16428.4)
AB 895 (Rendon) Page 2 of
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The purpose of the Ratepayer Relief Fund, established in GOV
§16428.15, is to benefit electricity and natural gas ratepayers
and to fund investigation and litigation costs of the state in
the pursuing allegations of overcharges. Section 16428.5 of the
Government Code requires that the fund be expended, upon
appropriation by the Legislature, for the following purposes:
(1) to repay or finance litigation and investigation expenses,
(2) to reduce ratepayer costs of those ratepayers harmed, and
(3) To reduce or pay debt service on bonds. The Ratepayer Relief
Fund may be used by the controller for loans to the General
Fund, repayable with interest.
Proposed Law:
This bill would prohibit the CPUC from distributing or
expending the proceeds of any claims in any litigation or
settlement related to the 2000-02 energy crisis and would
require all proceeds to be deposited into the Ratepayer Relief
Fund.
Staff
Comments: This bill is drafted in the Public Utilities Code and
does not reference Article 9.5 of Chapter 2, Part 2, Division 4,
Title 2 of the Government Code (commencing with §16428.1) other
than to identify the Ratepayer Relief Fund. As such, it is
unclear whether the requirement in this bill for all claims to
be deposited into the Ratepayer Relief Fund would allow the AG
and DWR to first recover their litigation costs, as is currently
provided in the Government Code. Because one of the purposes of
the Ratepayer Relief Fund is to reimburse the state's litigation
costs, the Legislature could appropriate funds for this purpose,
but the Legislature would not be bound to do. In contrast,
existing law allows the recovery of litigation costs without
legislative action. Should this bill result in litigation costs
not being repaid to AG or DWR, this bill would result in costs
to those agencies.
Similarly, while past settlements have almost all been directed
as refunds to ratepayers or to pay down bonds or long-term
contracts via the Electric Power Fund, the Legislature would not
AB 895 (Rendon) Page 3 of
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be bond to continue this practice as statute cannot bind future
Legislatures. Because the bonds and long-term contracts must be
paid by the ratepayers, to the extent that future Legislatures
do not appropriate Ratepayer Relief Funds to the electric Power
Fund, there would be costs to the state as a ratepayer of
electricity and natural gas.
Past settlements have been constructed differently depending on
the case. The claimants of cases involving short-term
settlements have been the large IOUs, DWR, and the AG. In these
cases, the CPUC directs the IOUs on how to return proceeds to
the ratepayers. DWR's proceeds go to the Electric Power Fund and
AG proceeds pay litigation costs. In cases involving long-term
contracts, the CPUC and the AG are the claimants, with the
settlement proceeds going to the CPUC after AG's litigation
costs are recovered. The CPUC has sent the proceeds to the
Electric Power Fund, with one exception- a case against the
subsidiaries of Dynergy Inc. In the Dynergy settlement, the CPUC
entered into a settlement that allowed in-kind payments to fund
installation of electric vehicle charging infrastructure.
This bill is unclear as to which settlement proceeds would be
affected- only the CPUC awards (as the bill is written in the
PUC Code), state awards, or all awards including the awards to
IOUs. Staff recommends that the bill's intent be clarified,
noting that the state may not be able to require the proceeds
awarded to the IOUs to be deposited into the Ratepayer Relief
Fund without creating a takings.
This bill would put spending of the settlement proceeds in the
hands of the Legislature. As mentioned above, while there is
statutory direction on how the Ratepayer Relief Fund must be
spent, statute cannot bind future Legislatures. Therefore there
is the possibility that the fund could be spent in ways that may
affect future settlements. That is, in determining settlement
amounts and divisions, the courts are likely to consider how
past settlements have been used. The ultimate impacts of this
bill on future settlements, however, are speculative.
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