BILL ANALYSIS Ó AB 1524 Page 1 Date of Hearing: April 28, 2015 ASSEMBLY COMMITTEE ON JUDICIARY Mark Stone, Chair AB 1524 (Committee on Utilities and Commerce) - As Introduced March 16, 2015 PROPOSED CONSENT SUBJECT: ELECTRICITY: ENERGY CRISIS LITIGATION KEY ISSUE: SHOULD THE ATTORNEY GENERAL BE AUTHORIZED AN ADDITIONAL TWO YEARS, until January 1, 2018, to REPRESENT THE ELECTRICITY OVERSIGHT BOARD IN EFFECTING SETTLEMENT OF CLAIMS RELATING TO THE 2000-2002 ENERGY CRISIS? SYNOPSIS This non-controversial bill, authored by the Assembly Utilities and Commerce Committee, simply seeks to extend, for an additional two years, the temporary authority of the Attorney General (AG) to represent the Electricity Oversight Board (EOB) in any litigation or settlement to obtain ratepayer recovery for the effects of the 2000-02 energy crisis. This authority will sunset of its own accord on January 1, 2016, and only a temporary two-year extension is sought because the need for the AG to exercise this authority is only temporary. The bill would allow the AG to continue to do what she is doing under existing AB 1524 Page 2 authority - namely, to sign off on financial settlements relating to claims arising from the 2000-2002 energy crisis. This bill previously was approved by the Assembly Utilities and Commerce Committee on consent and has no known opposition. SUMMARY: Extends, from January 1, 2016 to January 1, 2018, the temporary authority given to the Attorney General to represent the Department of Finance and exercise, all rights, claims, powers, and entitlements of the Electricity Oversight Board (EOB) in any litigation or settlement to obtain ratepayer recovery for the effects of the 2000-02 energy crisis. EXISTING LAW: 1)Authorizes, until January 1, 2016, the Attorney General to represent the Department of Finance and to succeed to all rights, claims, powers, and entitlements of the EOB in any litigation or settlement to obtain ratepayer recovery for the effects of the 2000-02 energy crisis. (Public Utilities Code Section 343(a). All further references are to this code unless otherwise stated.) 2)Prohibits, until January 1, 2016, the Attorney General from expending the proceeds of any settlements of those claims, except as specified. (Section 343(b).) 3)Prohibits, until January 1, 2016, the Attorney General from distributing or expending the proceeds of any settlements of claims allocated to the EOB. (Section 343(c).) FISCAL EFFECT: As currently in print this bill is keyed fiscal. AB 1524 Page 3 COMMENTS: This bill, authored by the Assembly Utilities and Commerce Committee, simply seeks to extend, for an additional two years, the temporary authority given to the Attorney General (AG) to represent the Electricity Oversight Board (EOB) in any litigation or settlement to obtain ratepayer recovery for the effects of the 2000-02 energy crisis. This authority will sunset of its own accord on January 1, 2016, and only a temporary extension is sought because the need for the AG to exercise this authority is only temporary. The bill would allow the AG to continue to do what she is doing under existing authority - namely, to sign off on financial settlements relating to claims arising from the 2000-2002 energy crisis. Background on the now defunct Energy Oversight Board. The EOB was created by 1996 legislation which deregulated California's wholesale electricity industry. Its primary mission was to oversee the California Independent System Operator (CAISO) and the Power Exchange (PX) which for a time was the marketplace in which all electricity in the state was bought and sold. The EOB was given very broad authority over ensuring reliability of the state's supply of electricity. The EOB's primary duty at that time was to act as a market monitor, to oversee the state's electricity market and initiate proceedings at the Federal Energy Regulatory Commission (FERC) in response to market manipulation. The EOB was a participant in over 400 proceedings at FERC and was a litigant in over 100 cases in the federal courts of appeal. Through 2005-06, the EOB had been a party to settlements of over $1 billion for various overcharges stemming from the energy crisis. As part of the 2007-08 budget process, Governor Schwarzenegger proposed an EOB budget of $4.1 million, but also proposed budget bill language which authorized the Director of Finance to reduce appropriations to EOB. Although savings were reflected, the Governor's proposal did not specify how EOB's existing workload AB 1524 Page 4 and authority would be transferred to another state agency. In response, the Legislature stated in budget hearings that elimination of the EOB and transfer of its remaining duties should be addressed in the policy committee process. Accordingly, the Legislature approved the EOB's operating budget and rejected the proposal to authorize the Director of Finance to reduce its budget appropriation. The Governor vetoed the Legislature's decision to appropriate funding for the EOB, then exercised his veto authority to reduce EOB's 2007-08 budget by 25 percent. In his veto message, the Governor declared his expectation that, by April 1, 2008, the EOB would be eliminated and its duties transferred to the Public Utilities Commission. The following year, the Governor's 2008-09 budget proposal included no funding for EOB, and restated his intent that EOB cease its operations by April 1, 2008. Attorney General needed to represent the EOB for the purpose of settling remaining claims. Until it was defunded in 2008, the EOB was one of the complainants in the Energy Crisis cases, along with the PUC, Attorney General, Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric (collectively, the "Cal Parties"). The Cal Parties brought the Energy Crisis cases against approximately 65 energy sellers, have now settled with over half of the sellers, and continue to negotiate settlement with the remaining sellers. In 2004, the Cal Parties, including EOB, entered into an escrow agreement with JP Morgan Chase Bank to handle all future settlements. Under that agreement, the signatures of all Cal Parties, including the EOB, are required to issue effective escrow instructions for the purpose of disbursing funds resulting from settlements with individual Energy Crisis-era sellers. This bill simply continues to allow the AG to sign for the EOB, facilitating the settlement of certain Energy Crisis AB 1524 Page 5 claims. Recent Supreme Court decision allows further Energy Crisis suits against energy companies. On April 21, 2015, the U.S. Supreme Court by a 7-2 vote ruled that energy companies can be sued under state antitrust laws for illegally manipulating natural gas prices during California's 2000-2002 energy crisis. (Oneok, Inc. v. Learjet, Inc. 575 U.S. ___ (2015).) Respondents, led by manufacturers, hospitals, and other institutions that purchased natural gas directly from interstate pipelines, sued petitioner interstate pipelines alleging violations of state antitrust laws that resulted in driving up wholesale prices of natural gas. The Court rejected petitioners' argument that federal law, the Natural Gas Act, preempted respondents' state law claims. As a result of this decision, there will likely be additional state law claims relating to the 2000-2002 energy crisis for which authority of the Attorney General to represent the EOB will be needed. REGISTERED SUPPORT / OPPOSITION: Support None on file Opposition AB 1524 Page 6 None on file Analysis Prepared by:Anthony Lew / JUD. / (916) 319-2334